Aluminum

Recently, MetalMiner’s Stuart Burns delved into the aluminum market deficit, one in which limited aluminum supply and elevated delivery premiums have been persistent features.

However, perhaps to some aluminum buyers’ relief, some supply is coming back online next year.

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Alcoa to restart idled smelter

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Alcoa Corporation earlier this month announced plans to restart an aluminum smelter that had sat idle since 2009.

The firm said it will restart the joint venture Portland Aluminium smelter in Australia, which has a total annual capacity of 358,000 metric tons per year.

However, Alcoa said it plans to restart 35,000 metric tons of capacity.

“Portland Aluminium is an unincorporated joint venture with 358,000 mtpy of total capacity, and Alcoa Corporation has 197,000 mtpy of consolidated capacity,” Alcoa said. “Once the restart is complete, Portland Aluminium will operate at approximately 95 percent of total capacity and Alcoa Corporation will have approximately 186,000 mtpy of its consolidated capacity at Portland operating.”

Renewed production at the Australian smelter is slated to begin in Q3 2022.

In September, Alcoa announced plans to restart its Alumar aluminum smelter in Brazil. The smelter, which has annual capacity of 268,000 metric tons per year, has been idle since 2015.

Midwest premium eases

As Stuart Burns has explained throughout the year, rising aluminum premiums reflect market tightness.

“The aluminum market is undeniably tight, as consumers are having to wait months for metal and the Midwest Premium rises,” Burns wrote back in March. “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 dramatically restrict supply options for consumers.”

Fast forward to Q4, and inventories in LME depots have continued to dwindle, Burns explained while also covering the background of the post-financial crisis aluminum market and the history of the so-called “stock and finance” trade and the shadowy world of off-warrant stocks.

However, the Midwest aluminum premium has lost some steam over the last couple of months. according to MetalMiner Insights data.

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Longtime readers of MetalMiner may recall a number of aluminum posts we have put out over the years since the financial crisis that explore shadow stocks or the “stock and finance trade” inventory that have referred to the murky world of “off-warrant,” or non-exchange, reserves of aluminum. Those reserves are often hard to determine in terms of location, volume or ownership.

They have remained an enduring feature of the global aluminum market. The market’s perception of their size and the possibility of their delivery back into circulation have been persistent influences on the market price.

See why technical analysis is a superior forecasting methodology over fundamental analysis and why it matters for your aluminum buy.

Aluminum after the financial crisis

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The stock grew in the immediate aftermath of the 2008 financial crisis, as the world went into a form of financial lockdown. All manner of downstream activities from automotive to household goods stopped consuming aluminum.

Recovery took many months, indeed stretched in 2010 before Chinese stimulus measures rippled out into the world, stimulating demand and facilitating a return to strong growth.

But primary aluminum mills — partially protected by power and alumina supply contracts linked to the ingot price and mindful of the huge cost to capital of shutting down major smelters — kept churning out the metal.

Stock and finance

Seeing an opportunity, traders and banks piled into the market.

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This morning in metals news: Nucor Corporation announced it is adding a blast and plate line at its under-construction Kentucky plate mill; aluminum prices have stabilized somewhat after plunging in late October and early November; and, lastly, job openings rates decreased in 12 states in November.

MetalMiner has launched a full suite of precious metals as part of the MetalMiner Insights platform. This includes a complete suite of catalytic converter precious metals, which are particularly useful for automotive end-use applications.

Nucor adds line at Kentucky plate mill

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Nucor announced late last week that it is adding a blast and prime line at its plate mill in Brandenburg, Kentucky. The mill is currently under construction.

The line will have an annual capacity of approximately 120,000 tons.

“By adding a blast and prime line to our state-of-the-art plate mill, we will be able to better serve customers in key markets, including our Nation’s military, infrastructure, heavy equipment, offshore wind and other energy products,” said Johnny Jacobs, vice president and general manager of Nucor Steel Brandenburg.

Nucor is investing $1.7 billion in the Brandenburg mill.

Aluminum prices stabilize

Aluminum prices plunged in late October and early November, falling from a peak of around $3,200 per metric ton to as low as $2,500 per metric ton, according to MetalMiner Insights data.

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U.S. President Joe Biden on Monday signed the $1.2 trillion Infrastructure Investment and Jobs Act into law.

The bill includes funding to upgrade the country’s transportation infrastructure, electric grid and more. As such, the projects will certainly need metals like steel, copper and aluminum, among others.

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In that vein, we recently chatted with Mike Stier, Norsk Hydro vice president of finance and strategy, about the bill’s potential impacts on the aluminum market.

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Infrastructure bill’s impact on aluminum demand

Infrastructure investment has traditionally been viewed in the context of roads, bridges, airports, etc. However, the infrastructure bill has a forward-looking environmental component to tackle climate change, Stier noted.

Among those improvements include supporting the electrification of cars and supporting infrastructure and upgrading power grids. All of those projects will impact aluminium demand. From its conductive properties to its use in vehicle lightweighting to demand for products like road signs, walkways, or masts and towers, aluminum is likely to get a demand boost as a result of the bill.

Demand time frame

So, how quickly will the bill’s provisions and projects start to impact demand for metals like aluminum?

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The United States and Japan have agreed to initiate talks regarding the former’s Section 232 tariffs on Japanese steel and aluminum imports, Reuters reported this week.

According to a report by AP, Japan’s industry ministry said Japan’s Industry Minister Koichi Hagiuda and U.S. Commerce Secretary Gina Raimondo attended the meeting. However, a ministry official said no concrete measures were discussed and no date was set for the talks.

The meeting comes after the U.S. administration said over last weekend that it would open talks to try to ease the tariffs.

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US, Japan at the negotiating table over Section 232

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The two nations have come to the negotiating table to resolve bilateral concerns from global non-market excess capacity driven largely by China, as well as the duties the U.S. imposes on imports, Raimondo and U.S. Trade Representative Katherine Tai said in a statement last Friday.

“Secretary Raimondo and Ambassador Tai reiterated concerns about the impact on U.S. industries stemming from global non-market excess capacity driven largely by China,” the statement reads. “The distortions that result from this excess capacity pose a serious threat to the market-oriented U.S. steel and aluminum industries and the workers in those industries.  The United States and Japan have a historic alliance, built on mutual trust and respect, and reflecting shared values and a strong commitment to resolving global challenges through closer cooperation.”

Earlier in November, Japan had requested the U.S. to abolish tariffs. Former U.S. President Donald Trump imposed the steel and aluminum tariffs in 2018, using Section 232 of the Trade Expansion Act of 1962.

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Before we head into the weekend, let’s take a look back at the week that was and the metals storylines here on MetalMiner, including softening steel prices, the House’s passage of the over $1 trillion infrastructure bill and more:

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Check if your service center is providing you with price transparency for your steel spend. 

Week of Nov. 8-12 (steel prices, infrastructure bill and more)

• Limited inventory and semiconductor shortages continue to weigh on U.S. automotive sales.
• The House of Representatives voted to pass the Infrastructure Investment and Jobs Act last Friday. President Joe Biden will sign the bill during a ceremony Monday, Nov. 15.
• MetalMiner’s Nichole Bastin delved into recent copper market trends.
• Steel prices have started to soften.
• Earlier this week, we broke down the infrastructure funding categories within the Infrastructure Investment and Jobs Act.
• U.S. steel capacity utilization fell to 83.4% last week, the American Iron and Steel Institute reported.
• Meanwhile, U.S. construction spending dipped in September, the Census Bureau reported.
• A strong aluminum market has been a boon for Novelis, as reflected by its most recent quarterly report.
• The Consumer Price Index rose by 0.9% in October, the Bureau of Labor Statistics reported. Furthermore, the index is up by 6.2% over the last 12 months.
• The Greenland parliament this week voted to ban uranium mining and exploration, effectively halting the Kvanefjeld project.
• Automotive sales in China fell by 9.4% year over year in October, the China Association of Automobile Manufacturers reported.
• The Global Precious MMI rose by 5.8% for this month’s reading.
• Lastly, German firm Aurubis AG announced plans to invest €300 million to build a metals recycling plant in the U.S.

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.

Aluminum buyers just about everywhere have suspected their suppliers have been making the most of a tight market to maximize their returns this year.

Those fortunate enough to have fixed aluminum prices for the year back in early 2021 will be anxiously looking at 2022 renewals. The majority, however, will be licking their wounds following a relentless rise in aluminum prices, extended delivery times and a supplier landscape that in many cases has taken a “take it or leave it” attitude to both price and availability.

Do you use cost breakdowns in your aluminum negotiations? See other tips in negotiating with mills and service centers.

Novelis posts strong quarterly results

One of the U.S.’s largest aluminum manufacturers’ recent income announcement for Q2 2021 underlines just how well the mills have been doing.

Novelis Inc., a wholly owned subsidiary of India’s Hindalco Industries, reported a net income of $237 million during Q2 as compared to a net loss of $37 million in the prior year period.

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Net income from continuing operations reached $239 million against $144 million in the prior year. Furthermore, second quarter fiscal year 2022 net income jumped 54% to $244 million.

Novelis benefitted from readily available scrap input rather than the position for many of its competitors who rely on primary ingot or slab. As a result, Novelis could increase shipments, unconstrained by a tight primary metal market.

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This morning in metals news: U.S. steel capacity utilization dropped to 83.4% last week; the Associated General Contractors of America weighed in on the passage of the infrastructure bill in the House of Representatives; and, lastly, the aluminum price has continued to slump.

MetalMiner has launched a full suite of precious metals as part of the MetalMiner Insights platform. This includes a complete suite of catalytic converter precious metals, which are particularly useful for automotive end-use applications.

US steel capacity utilization down to 83.4%

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U.S. steel capacity utilization fell to 83.4% for the week ending Nov. 6, the American Iron and Steel Institute reported.

The rate marked a drop from 84.3% the previous week.

Meanwhile, steel output last week totaled 1.84 million net tons, or down 1.0% week over week. However, the weekly total remained up 14.3% year over year.

For the year to date, output reached 80.7 million net tons, or up 20.1% year over year.

AGCA touts infrastructure bill

After the House of Representatives approved the over $1.2 trillion infrastructure package on Friday, industry groups of all stripes offered their reactions.

The Associated General Contractors of America (AGCA) said the bill will provide a “needed boost” to the construction sector.

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When news of Russia’s export tax on primary aluminum came out in the summer, it caused an increase in LME prices. More significantly, however, physical delivery premiums — such as the Midwest premium, the Rotterdam premium and the Main Japanese Port (MJP) premium — also increased.

See why technical analysis is a superior forecasting methodology over fundamental analysis and why it matters for your aluminum buy.

Aluminum premiums surge

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Of the three, the Rotterdam premium arguably had the biggest impact. Some European rolling and extrusion mills beginning to quote the Rotterdam premium – either duty paid or duty unpaid – as a separate component of their pricing structure.

That has long been a feature in the U.S. market, where the Midwest premium has been a sizeable component of the all-in price. However, it had never been a cost broken out for European consumers, with the mills absorbing the Rotterdam premium as part of their conversion premiums.

Russian aluminum export tax

Russia set its export tax at 15% or U.S. $254 per metric ton, whichever is larger, back in August for an initial six-month period. The move ostensibly aimed to dissuade primary metal exports in an effort to support domestic consumers facing rapidly rising costs in a domestic manufacturing sector that was running hot as it bounced back from pandemic restrictions.

The expectation was the tax would likely remain in place well into 2022, as it would provide a welcome revenue stream for the Russian treasury. However, maybe bolstered by bumper oil revenues or faced with strong lobbying by Rusal, a recent Reuters report suggests the probability is the tax will be allowed to end in December. As a result, metal supplies to Europe could increase.

Aluminum has already fallen from a high of $3,300 per metric ton to $2,700 in just over a month. The Fast Markets Duty unpaid Rotterdam premium has dropped 20% from $380 per ton in September to $302 today.

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The Aluminum Monthly Metals Index (MMI) fell for the first time in nine months, dropping by 1.5%.

After prices hit the record peak in late October, aluminum started to face some speed bumps when the price attempted to continue to trade upward.

Since Beijing’s intervention into the coal market, LME aluminum prices began to retrace back to mid-August prices. This follows an impressive rally that extended more than a year and saw aluminum outperform nearly all base metals (with the exception of tin).

From a technical perspective, aluminum prices currently lack sufficient bullish signals. October’s price action indicates a substantial risk for an overall trend reversal.

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Section 232 tariffs resolution

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A much-anticipated agreement was reached regarding the Section 232 tariffs between the U.S. and the European Union.

Former President Donald Trump imposed the tariffs in 2018, citing national security concerns under Section 232 of the Trade Expansion Act of 1962. The import duties came in at 25% for steel and 10% for aluminum. In 2020, the Trump administration went on to add tariffs on certain derivatives of aluminum and steel.

Under the new resolution announced in late October, the existing tariffs will be replaced with a tariff-rate quota (TRQ) effective Jan. 1, 2022.

For aluminum, the TRQ will apply to historically-based volumes of E.U. aluminum. Excess volumes that enter the U.S. market will still be subject to a duty of 10% (unless they are subject to an exclusion).

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