European aluminum market under duress

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Andrey Kuzmin/Adobe Stack

There is not a lot of chatter in the press about this yet, but speak to producers and consumers and you will hear plenty of complaints about the European aluminum market.

Both flat rolled and extruded products are facing serious supply issues. However, whether they will be short-lived or prove more persistent is not yet clear.

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European aluminum market challenges

On flat rolled, manufacturing has not bounced back with the vengeance some as some hoped. However, it has recovered quite strongly in some sectors. Automakers and consumer durables have sought to catch up from the first half of last year, which saw a collapse in demand and output.

Automotive manufacturers, in particular, are struggling to get enough material. This comes despite some car output slowing because of a lack of semiconductors. Hard alloy 5000 series sheet deliveries are out to July-August production at some plants. Extended lead times and rising LME prices — now above $2,200 per metric ton this week — are encouraging distributors to overorder. In short, this is further exacerbating the problem.

Extrusion confusion

If anything, the position with extrusions is even worse.

The loss or denial of Chinese supply as a result of countervailing duties has, as intended, pushed demand onto domestic suppliers. There appears to be a shortage of metal right from the primary ingot end of the supply chain.

Billet casters are complaining they can’t get enough ingot. As a result, they are putting extrusion clients on allocation or, at a minimum, advising they will be able to meet their contractual quantities but no more.

In conversations with MetalMiner, extrusion mills have advised they are looking outside of Europe for billet supplies. Some have said they are looking to the Middle East and even Asia.

As a consequence, billet premiums have been rising. Extrusion mills have found their margins under pressure, as the market has tried to resist price rises for any more than the increase in LME base costs.

Even imports, though, are not a quick fix. Billet casters in the Middle East are said to be on 12-week lead times ex-mill before shipment is taken into account.

Meanwhile, an extremely tight shipping market is hindering imports from Asia. Freight premiums are double what they were last year. In addition, container availability is limited.

Whether this proves to be a relatively short rise remains to be seen.

But, set against a backdrop of rising commodity prices, such market tightness tends to be self-fulfilling. It encourages the supply chain to overorder or bring forward orders in the anticipation they will beat price rises or secure tonnage that could become scarce in months to come.

That increasing demand has caught the supply market unawares.

The situation could get worse before it gets better.

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