Rising Midwest Premium reflects aluminum market tightness
The aluminum market is undeniably tight, as consumers are having to wait months for metal and the Midwest Premium rises. In some locations — Europe, in particular — consumers of rolled plate cannot secure new production space until well into Q3.
Some mills have even pulled out of quoting for new business customers in 2021. Anti-dumping legislation on flat rolled products from China and a fire last year at a Russian rolling mill have combined to dramatically restrict supply options for consumers.
As a result, prices have moved up.
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US aluminum situation
The US is no better.
Semi-finished product prices are rising and lead times are extending. It is convenient to blame the recent decision to apply substantial anti-dumping duties on 18 countries supplying the US with flat rolled commercial aluminium. The move has severely distorted the supply market. A significant number of major supplying countries, including Germany, South Korea and Turkey, are shut out by the high tariffs.
However, the tariffs are not the only reason the market is tight.
As intended, the supply chain has now switched focus to domestic — or, at least, USMCA members’ North American mills. The result is lengthening lead times and price rises.
Some consumers have asked why the LME primary metal price hasn’t risen further in view of the tight market. The reality is what we are seeing is a distorted supply market, not a global primary metal shortage.
It is true to say global ingot supply is constrained, in part due to massive Chinese imports at levels last seen back in 2011. The distortion in production regions is causing localized metal supply problems.
LME prices have risen in recent days. However, prior to that rise, they had been rangebound since the start of the year. Only the SHFE ingot price has been in an inflationary mode, in part due to insatiable investor demand and the build of unprecedented long positions on the exchange.
Rising Midwest Premium
The place to look for an indication of the tight ingot market in the rest of the world is physical delivery premiums.
Unsurprisingly, both the Midwest Premium and the European/Rotterdam delivery premium have both risen strongly.
With no obvious end in sight to the semi-finished product market restrictions and a restocking frenzy fueled by rising prices, a situation akin to 2011 is possible. In that scenario, prices continued to rise strongly for a 12-18 months before finally abating.
US stimulus measures, both the initial $1.9 trillion already voted into law and the proposed $2-3 trillion “Build Back Better” package (which may only see the light of day as a lesser infrastructure program), will nevertheless create a substantial boost to US growth this year and next.
Those initiatives could potentially drive the US economy to levels of growth not seen in a decade. US growth could even exceed that of China’s in 2021.
Under such circumstances, even recent rises in physical delivery premiums may not be the end of the story.
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