Aerospace may be down, automotive is coming back, albeit going through immense change from internal combustion engine (ICE) to electric vehicles (EVs), but one sector of the aluminum market that is brewing up a storm is the aluminum can market.
The media has been awash with reports for months now that the aluminum can market is really tight. As lockdowns hit this year and bars either closed or saw falling attendance, consumers switched to supermarkets and liquor stores for their soft and beer beverages.
Beer and soda sales have held up well and are actually increasing for some. But where brewers and drinks producers sold volume through hospitality outlets and delivered in kegs, they now have to meet demand in six-packs from supermarket shelves.
The switch to aluminum cans has been unprecedented. “For the most part, the North American can industry is sold out for the next 24-36 months, and we don’t see the supply chain catching up to real demand until 2025-26,” Credit Suisse said in a recent report.
According to SPGlobal, U.S. producer shipments of aluminum can stock for the domestic market in the second quarter rose 5.5% year over year to 912.5 million pounds. Meanwhile, in the first quarter, Aluminum Association data show U.S. imports of aluminum can sheet reached 118.18 million pounds. That figure compares with 71.59 million pounds in Q1 2019 — a 65% jump.
The SHFE aluminum price has traded sideways since mid-July. The price is averaging CNY 14,661/mt over the past three months.
By August, the LME aluminum price started to follow the sideways trend as well, averaging $1,777/mt since then.
However, the SHFE aluminum price continued to move higher than its LME counterpart.
Throughout September, SHFE prices were approximately $370/mt higher than the LME price.
The arbitrage continues to promote imports in China, making it a net importer for a second consecutive month in August. This trade flow indicates large demand for aluminum in the Chinese market, which is well on its way to economic recovery.
The current state of trade raises the question: how much longer can China continue to export semi-finished metal if its cost base is approximately $370/mt over the LME? Are mills selling at a loss (or are they subsidized)?
Tariffs against China
China accounts for approximately 55% of global aluminum production.
Despite it being a net importer for the past few months, China is still a huge exporter of aluminum downstream products. Chinese exports caused other large markets to contemplate restrictions on Chinese aluminum imports.
Currently, India is seeking to develop policies to protect its own domestic production. India’s first measure might require every importer to obtain a license from the government for every shipment. Even though the measure applies to exports from all origins, the Federation of Indian Mineral Industries pointed out most of the country’s imports come from China.
Meanwhile, the European Commission imposed provisional anti-dumping duties on aluminum products from China, with duties reaching as high as 48%. The Commission opened an investigation in February after it suspected China of dumping aluminum extrusions.
The director general of the European Aluminium Association said the duties were not only crucial for the survival of the domestic aluminum market but also for a greener regional economy.
MetalMiner’s metals price landing pages (aluminum, steel and stainless steel) now feature the LME three-month prices set against MetalMiner’s track record, in addition to “should-cost” prices.
How much should your metals buy cost?
It’s a simple question that doesn’t always have a simple answer — or, at the very least, an answer that’s easy to get.
MetalMiner’s “should-cost” models aim to cut through the confusion and give buyers concrete ideas of what the products they’re buying should be costing them.
The MetalMiner should-cost models cover aluminum, steel and stainless steel.
So, what exactly do the models offer?
Aluminum should-cost model
With respect to aluminum:
Comprehensive price breakdowns, including conversion cost for specific grade, thickness and width.
In addition, the model is global; buyers can use from multiple regions.
Lastly, buying organizations can more effectively “lock” conversion costs.
“Many competitors publish the LME three-month price along with the MW premium,” MetalMiner CEO and Executive Editor Lisa Reisman recently noted. “Few, if any, publish the conversion adder based upon grade, gauge, width etc. The MetalMiner aluminum should-cost model provides a level of granularity not previously available in the marketplace.”
As for carbon steel, there is currently no North American price index for finished steel inclusive of adders and extras.
In addition, the carbon steel should-cost model includes:
Most steel contracts are agreed on the basis of base price, which provides little to no flexibility to negotiate on total price. The steel should-cost model provides a price breakdown for adders/extras, which can generate additional cost savings for steel buyers.
The model includes a price breakdown comparison of major U.S. steel mills. Buyers can use the information to negotiate annual sourcing contracts.
Furthermore, the model contains a high level of granularity for specific types of steel (examples of specificity can be found on our carbon steel price landing page).
What about stainless?
Similarly, there is currently no North American price index for stainless. In addition, the MetalMiner stainless should-cost model:
Contains a high level of granularity for specific types of stainless. Examples of specificity can be found on our stainless price landing page.
Second, the model features comprehensive price breakdowns (base price + gauge/width + finish + surcharge + vinyl + CTL).
Lastly, it provides better means of negotiating effectively with suppliers.
The Aluminum Monthly Metals Index (MMI) increased by 2.4% for this month’s MMI value.
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SHFE, LME arbitrage
LME and SHFE aluminum prices traded sideways this past month.
The LME price reached $1,818/mt on Sept. 1, a level it had not reached since January 2020.
Meanwhile, the SHFE price reached CNY 14,960/mt on Aug. 24. However, the SHFE aluminum prices continued to move higher than the LME price.
Throughout the month, SHFE prices were approximately $360/mt to $415/mt higher than the LME price. Some of the arbitrage has occurred due to the weakening of the U.S. dollar, which makes the Chinese price appear higher.
Chinese imports remain high
The price arbitrage between the LME and the SHFE continues.
China became a net importer for the first time in July. The country imported 440,000 tons in July, according to the General Administration of Customs.
July imports rose by 35.5% from the previous month and by 570% from July 2019.
The arbitrage and increase of aluminum imports in China led to the decline of LME warehouse stocks to 1.55 million tons by the end of the month.
On the other hand, Chinese exports are down 11% from August 2019 (despite a slight increase in August). However, exports reached a four-month high at 395,424 tons. The downtrend is mostly due to weak demand overseas, as most countries are still in the early recovery phases of the coronavirus pandemic, while China seems to be ahead.
Several metals prices have been on the rise this year, powered in part by China’s demand recovery (among other factors, including a weakening dollar). Copper, in particular, has been a fast riser this year.
Aluminum, however, has not been as strong.
Over the last month, the LME three-month aluminum price has gained 4.62%, according to MetalMiner data.
However, since the start of the year, the price is actually down 2.8%.
Rising production levels won’t necessarily help support the aluminum price.
Citing a rise in imports from Canada, the Section 232 tariff targeted Canadian non-alloyed, unwrought aluminum.
The reimposed tariff went into effect Aug. 16, despite criticism from domestic industry groups, including the Aluminum Association.
Trump initially levied the Section 232 tariffs on steel and aluminum in March 2018. After an initial exemption, the tariffs were eventually applied to imports of the metals from Canada.
However, in May 2019, the tariffs on Canadian steel and aluminum were rescinded as part of ongoing talks over the successor to NAFTA (the United States-Mexico-Canada Agreement, which went into effect July 1, 2020).
The MetalMiner metals price landing pages (aluminum, carbon steel and stainless steel) now feature LME three-month prices set against MetalMiner’s forecast track record, in addition to “should-cost” prices.
The pages can be found from the homepage’s top menu under “Metal Prices.”
As of this month, visitors to these pages can now find a modified, interactive price chart modeling the LME three-month price against the MetalMiner Monthly Outlook forecast track record and including MetalMiner buy signals.
“The main idea here is to showcase savings we can make for our customers if they use our Monthly Outlook,” said Marcos Briones Alvarez, MetalMiner’s procurement forecasting data analyst.
Particularly in a time of considerable volatility, it’s important to stay abreast of what’s going on in metals markets, from capacity developments to pertinent trade news to price drivers.
In addition, on a weekly basis the pages will feature updated “should-cost” metals prices by grade, width, gauge, etc.
In short, what “should” something — 5052 aluminum sheet, for example — cost?
“Many competitors publish the LME three-month price along with the MW premium,” MetalMiner CEO and Executive Editor Lisa Reisman notes. “Few, if any, publish the conversion adder based upon grade, gauge, width etc. The MetalMiner aluminum should-cost model provides a level of granularity not previously available in the marketplace. In addition, the aluminum model can be used by global market participants vs. only North American companies.”
Similarly, the new-look carbon steel page also differentiates itself from other offerings.
“All of the published price mechanisms currently available in the market involve the ‘base’ price (e.g., the HRC or the CRC number),” Reisman added. “However, no price index exists to see the total price computed with the base metal, plus all of the adders and extras at the grade level.”
The should-cost metal offers buyers additional granularity in the form of pricing by mill. In short, industrial buying organizations can arm themselves with the necessary knowledge to get the best possible deal (a topic we cover in our dedicated best practice library).
“Moreover, the MetalMiner carbon steel should-cost model allows the buying organization to quickly see which mill charges what price for each adder and extra,” Reisman continued. “So, in addition to providing a total price, the capability allows the buying organization to make a sourcing award decision by mill.”
Last but not least, the revamped stainless steel page also offers something no one else does.
“There is currently no North American stainless steel price index or mechanism for any buying organization to either: a) negotiate with suppliers or b) establish as a contracting mechanism,” Reisman added.
So what, exactly, makes the MetalMiner stainless steel should-cost model so unique?
“The stainless steel should-cost model provides the buying organization with visibility into all of the elements comprising total cost at the grade level (e.g., 304, 201, 439, etc.),” Reisman said.
Those elements can be broken as such: base price+width/gauge adders+finish+CTL (cut to length)+vinyl adders.
According to Aluminium Today, the products under review include: sheets; coils; coiled strips; aluminum circles of a thickness of 0.03 mm to 6 mm; and aluminum plates over 6 mm.
Interestingly, not included in the investigation will be: aluminum cans; body panels for automobiles; and aircraft parts of a thickness greater than 0.8 mm (for which Chinese penetration of the European market is substantially lower).
“It’s obvious that Chinese firms aren’t respecting the global rules of free and fair trade, and the numbers show they are dumping more and more products on our market,” Aluminium Today quoted European Aluminium Director General Gerd Gotz as saying. “The volumes of excess capacity they have built up are so massive, they could replace the entire European aluminium production.”
Rising flat-rolled imports from China
Flat-rolled aluminum imports from China into the E.U. included in the scope of the investigation increased from 171,000 metric tons in 2016 to 330,000 tons last year. In 2019, the market share of these imports from China reached more than 12%. Market share had doubled compared to four years ago, according to Aluminium Today.
In a recent report, the OECD stated global aluminum companies have received up to USD 70 billion in different forms of support over the 2013-2017 period.
Notably, 85% of the documented subsidies went to just five Chinese firms.
The green argument
Individuals and businesses around the world are devoting more and more to the carbon footprint of the aluminum industry. In that vein, some point to the environmental impact of aluminum production in Europe versus China (and the world at large).
This past week’s metals news covered everything from silver price movements to the copper price rise’s slowdown to the reimposition of tariffs on some Canadian aluminum.
We also broke down President Donald Trump’s recent proclamation with respect to reimposing the Section 232 tariff on some Canadian aluminum. MetalMiner’s Stuart Burns delved into the concern expressed by Ontario Premier Doug Ford: could Trump target Canadian steel next?
As our readers know well by now, Trump imposed Section 232 tariffs on imported steel and aluminum of 25% and 10%, respectively, in 2018. During the course of negotiations with Canada and Mexico over the United States-Mexico-Canada Agreement (USMCA) — the successor to NAFTA — the U.S. rescinded the tariffs in May 2019.
Now, at least for unalloyed aluminum from Canada, the tariff is back.
The Aluminum Monthly Metals Index (MMI) increased by 5% for this month’s MMI value.
SHFE prices stronger than LME prices
LME and SHFE aluminum prices continued to trade up.
The LME price reached $1,783/mt on Aug. 10, a six-month high. Meanwhile, the SHFE price reached CNY 14,820/mt on Aug. 3, a year-to-date high.
However, the SHFE aluminum price has continued to diverge from LME aluminum prices since April, with the SHFE being higher than the LME.
As a consequence, LME warehouse stocks have remained above 1.6 million tons since mid-June. These are the highest levels seen since May 2017.
The elevated stock level is due to a combination of low raw material prices and the high cost of shutting down primary smelters. This is in line with the estimated market surplus for January to May of 908,000 tons, as reported by the World Bureau of Metal Statistics.
Record imports amid strong Chinese aluminum demand
The price arbitrage between the LME and the SHFE, along with the strong Chinese demand, have incentivized traders to purchase aluminum at the discounted price overseas.
As a consequence, China imported 816,592 metric tons of aluminum, up 219.2% year on year for the first half of the 2020. In June alone, China imported 490% more than a year ago, reaching an 11-year high.
Reuters reported that Antaike, the China Nonferrous Metal Industry Association’s research department, revised its 2020 aluminum consumption by 1.7%. Antaike’s new estimate is 36 million tons, compared to the previous estimate of 36.6 million tons.
Since China’s demand for aluminum does not seem to be declining, it is set to be a net importer of primary aluminum this year, closing at 400,000 tons.
Last year, China was a net exporter at 1,000 tons.
Trump reinstates tariff on some Canadian aluminum
On Aug. 6, President Donald Trump reimposed a 10% tariff on some Canadian aluminum products to protect U.S. industry from excessive imports. The tariff applies to raw, unalloyed aluminum produced at smelters. The tariffs do not apply to downstream aluminum products.
However, data released Aug. 5 by the U.S. Census Bureau showed overall primary aluminum imports from the U.S. to Canada declined about 2.6% from May to June. In short, that means imports are below levels seen as recently as 2017.
As a result, the U.S. market might see an increase in the MW premium, which will feed through to higher semi-finished prices. The MW aluminum premium is currently $0.12/lb.
After the tariff announcement, Canada pledged to impose retaliatory tariffs on C$3.6 billion (U.S. $2.7 billion) worth of U.S. aluminum products. During a news conference, Deputy Prime Minister Chrystia Freeland said the countermeasures would be put in place by Sept. 16 to allow for consultations with industry.