For aluminum buyers vying for material, they’re finding physical delivery premiums are elevated.
In fact, rising premiums are a sign of market tightness, MetalMiner’s Stuart Burns explained this month. Furthermore, premiums are up in both the US and Europe.
Among the reasons for the rise, China’s shift to net importer has led to the country sucking up a large share of available supply.
“The resulting arbitrage has sucked in imports of both pure and alloy ingot,” Burns wrote. “China imported nearly a quarter of a million tons of primary and over 140,000 tons of alloy metal in just the first two months of this year. That brought its cumulative net totals to 1.3 million tons of primary and 1.1 million tons of alloy since the start of 2020.
“Imports like that, much on spot markets or via traders, has sucked exchange traded and shadow market metal east, placing it conveniently for short onward shipment to China.
“As a result, there is less metal available in warehouses in Europe and the US.”
The Midwest Premium reached $0.22 per pound this week. In January, the premium had fallen as low as $0.12 per pound.
Copper stabilizes after late February, early March drop
The LME three-month copper price surged to a peak of $9,560 in late February.
However, like nickel, the red metal cooled at the end of February and early March. The three-month price fell to $8,757 per metric ton as of March 4.
“This is a classic overbought market in which traders sought to take some profits,” MetalMiner CEO Lisa Reisman explained last month. “With the exception of tin, all of the non-ferrous metals traded down. And though nickel looks weaker (as does lead), most of the non-ferrous metals remain in their uptrend, as does the ferrous metals complex.”
Since then, copper has stabilized. The price has mostly traded between $8,900-$9,000 per metric ton. The three-month price closed Tuesday at $8,893 per metric ton, or down 1.59% from the previous month.
Copper market shift
Elsewhere, Stuart Burns recently delved into the shift in the global copper market as a result of China’s relaxation of scrap import regulations.
Efforts to reduce Europe’s carbon footprint are many and varied, including in the European aluminum sector.
Energy-intensive industrial processes like steel, aluminium and cement manufacturing make up a significant chunk of carbon emissions. A carbon tax as crafted in the EU’s Carbon Border Adjustment Mechanism (CBAM) is seen as a major plank in shutting out or penalizing producers outside the bloc with high carbon
loadings. In turn, the mechanism thereby supports domestic producers with much lower carbon footprints.
An SBGlobal article cites European Aluminium Association data, saying the carbon footprint for primary aluminum production in China is, on average, three times more carbon-intensive than producing the same aluminum in Europe.
Andrey Kuzmin/Adobe Stack
Yet, due to subsidy and support, China has come to dominate global aluminum production this century. Meanwhile, European aluminum output has declined.
China produced 37.3 million metric tons of primary aluminium last year. That marked 57% of world output of 65.3 million metric tons. Meanwhile, Western Europe produced just 3.3 million metric tons, or 5%, with some 30% of capacity lost since 2008.
Yet, opposition to a CBAM program has come, surprisingly, from the European aluminum industry itself.
European Aluminium, representing some 80% of producers across 30 European nations, with some 600 plants, said it is united in fearing a CBAM may be difficult to calculate. It also argues it could disrupt value chains and encourage carbon leakage by driving downstream producers out of the EU, providing no incentive to their decarbonization.
Crucially, Europe is a net importer of aluminium. The EU imports about 50% of its primary ingot, principally from Norway, Iceland, Russia, the UAE and Mozambique.
The region also imports a very significant percentage of its semi-finished aluminium. Much like the US, domestic production is nowhere near enough to meet domestic demand. Europe’s supply chains are complex and varied, from bauxite through to semi-finished products.
Therein lies the problem.
The European Aluminium Association and its members are worried there will be multiple and profound consequences, implications and distortions to the supply chain if certain countries are penalized with a carbon tax.
The industry prefers more targeted action. For example, the EU Commission’s action against Chinese flat rolled product producers for subsidized and unfair pricing has resulted in tariffs added to those imports this week. As we have reported recently, the new tariffs will range between 19.3% and 46.7% and affect commercial flat-rolled aluminium products, depending on the producer, while the probe continues. If upheld as expected, the rates will hold for five years from October 2021.
Industry decarbonization efforts
State or superstate action aside, the industry is making its own decarbonization efforts. Customer and investor sentiment, rather than legislation, are spurring those efforts.
Just this week, En+ Group, owner of Russian giant Rusal, announced in a press release a major breakthrough in refining technology producing 99%+ pure aluminium with industry’s lowest carbon footprint. The company said the metal contained less than 0.01 tons of CO2 equivalent per tonne of metal. It produced the metal using the company’s new-generation inert anode electrolysers, located at the Krasnoyarsk Aluminium Plant.
The statement reiterated En+’s goal of being net-zero by 2050. It also aims to reduce emissions by at least 35% by 2030.
The technology replaces standard carbon anodes with inert, non-consumable materials – ceramics or alloys, which results in a major reduction of emissions from the smelting process. Not only are carbon emissions down by 85%, but the technology reportedly releases oxygen in the process of aluminum production. One inert anode cell can generate the same volume of oxygen as 70 hectares of forest, the group claims.
That being the case, Rusal would probably welcome a CBAM. The firm would have gotten preferred status even before the new technology was proven. With 100% of Rusal’s aluminum now made from hydropower, it already had one of the lowest carbon footprints in the industry.
But the takeaway here is market forces are driving dramatically lower carbon content in European aluminum. Ultimately, that trend may prove a more dynamic influence than industrywide catch-all legislation, like the CBAM.
This morning in metals news: Oslo-based Norsk Hydro said it is exploring the potential for developing and operating hydrogen facilities; meanwhile, the Consumer Price Index for All Urban Consumers increased by 0.6% in March; and En+ Group touted its development of a high-purity aluminum.
The firm said the facilities would serve both internal demand and the external market.
“We see a substantial potential for industrial hydrogen consumption,” said Hilde Merete Aasheim, president and CEO. “Taking a developer and operator role in the hydrogen sector represents an opportunity for Hydro to reduce industrial CO2 emissions and develop a profitable and sustainable business based on hydrogen.”
CPI ticks up in March
Meanwhile, the Bureau of Labor Statistics reported the CPI for All Urban Consumers rose by 0.6% in March.
This morning in metals news: energy-related emissions from the US industrial sector fell by 8% in 2020; meanwhile, Chinese steel production remains strong despite production curbs in Tangshan; and, lastly, GlobalData forecast Chile’s copper production will rise by 3.7% this year.
Furthermore, energy-related CO2 emissions fell for every end-use sector for the first time since 2012.
In addition, energy-related CO2 emissions from the industrial sector fell by 8%.
Chinese steel production remains strong despite curbs
Despite production cutbacks in China’s steelmaking hub of Tangshan, steel production in the country continues at a robust rate, the South China Morning Post reported.
According to the report, China’s blast furnace capacity utilization rate is at 87% after a slight increase.
GlobalData: Chile copper output to rise 3.7% in 2021
After an up-and-down 2020, Chile’s copper output is likely to pick back up this year.
GlobalData forecast Chile, the world’s top copper producer, will see output rise by 3.7% this year.
“Chile’s copper production is estimated to have declined by 0.7% in 2020,” said Vinneth Bajaj, associate project manager at GlobalData, in a release. “While the country’s mining sector avoided a full-scale lockdown as seen in neighboring Peru, operational restrictions and rising cases impacted the progress of various developments. For example, Codelco had to halt on-site construction activities at Chuquicamata and El Teniente, with rising cases leading to mounting pressure from workers and the temporary shutdown of Chuquicamata at the end of June 2020.”
Cut-to-length adders. Width and gauge adders. Coatings. Feel confident in knowing what you should be paying for metal with MetalMiner should-cost models.
Stuart Burns on oil prices on the heels of the latest supply-side news from OPEC.
China is ahead of the game when it comes to securing raw materials for the next industrial revolution.
The US Court of International Trade ruled in favor of a plaintiff contesting former President Donald Trump’s proclamation that expanded the Section 232 metals tariffs to steel and aluminum derivatives.
In the Greenland elections, a left-wing party’s victory could be a roadblock to development of a rare earths mine project.
In a recent report, Citi said it expects the metal to fetch $10,000 per metric ton “sooner rather than later” on the basis of a tight supply market. Furthermore, Citi forecast a return to over $9,000 over the next three months and to $10,000 between 6-12 months out.
But a Reuters column by Andy Home offers a more cautious analysis. Home suggests the rapid rise last year and into this was the result of an unexpectedly strong rebound in Chinese manufacturing. As a result, that prompted a surge in imports of refined metal.
Strong investor interest and supply chain restocking abetted price rises. Investors bought into the electrification story and demand from strong electric vehicle (EV) sales. They bought into Citi’s supply constraints, with mine supply hampered by ongoing pandemic restrictions and the longer-term narrative of falling grades and lack of new mine investment.
Before we head into the weekend, let’s take a look back at the week that was and some of the metals storylines here on MetalMiner, including the Suez Canal blockage, the April 2021 MMO, Western European hot rolled coil prices and much more: