As if aluminum buyers didn’t have enough to contend with, including long mill lead times and rising conversion premiums, they are also dealing with a rising Midwest premium.
Furthermore, Russia’s move to impose a 15% export tax on unwrought aluminum has had a profound impact on the Midwest delivery premium.
A recent Reuters article reports that the CME Midwest premium has jumped to a record high of $660 per ton ($0.30/lb). As a result, product manufacturers and their end users are facing an all-in price for unwrought raw material in excess of $3,000 per metric ton, even before conversion to product premiums are added in.
But the post goes on to explain that Russia’s export tax is not the sole reason for seriously elevated physical delivery premiums.
Over the last few years, the shift in exchange and off-market global inventory has been from North American and European markets toward Asia.
MetalMiner experts recently joined ROTH Capital Partners for a webinar that covered a wide range of metals topics, including oil prices, macroeconomic trends, and insights into the aluminum, steel and copper markets.
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The webinar, which took place July 14, followed up on a previous MetalMiner-Roth webinar on May 20, 10 days after metals surged to record highs. Copper, for example, reached an all-time on May 10. MetalMiner CEO Lisa Reisman and Vice President of Business Solutions Don Hauser joined to share their insights on various markets, recapping metals movements in the two months since that peak.
If you missed it live, register here to receive a copy of the webinar recording to hear all of Reisman and Hauser’s insights from the hourlong webinar.
On July 28, get a sneak peek of the MetalMiner annual budgeting and forecasting workshop (a three-hour virtual event that will take place in August 2021). Get ready to plan for 2022.
Bull market
While prices have come off of the record highs seen in May, they remain elevated. In short, we remain in a bull market.
“We are still in a bull market,” Reisman said. “The nonferrous metals are taking a pause but unless we see them start to fall off toward support levels … they’re still in a bull market.”
However, in terms of the “supercycle” narrative — which we have covered in this space previously — MetalMiner remains skeptical.
“The reason we’re struggling with the big supercycle narrative is that we would expect to see a decade, 1o years, of sustained, upward demand,” she said. “We don’t quite see that.”
With that said, metals demand currently is strong across a range of industries.
Throughout June, LME aluminum prices cooled off. However, in the last week of the month, prices picked up and surpassed the $2,550/mt mark by the first week of July.
Trading volumes during the first week of July were lower than the June average of 14,426 metric tons. Volumes were heavier on days when the price went down, meaning there is no strong market signal.
Chinese prices trended differently from their LME counterpart. Chinese aluminum prices traded sideways throughout June and the first week of July. In June, trading volumes approximately tripled as the price went up but immediately declined, along with the price which could signal a bullish market.
Russia to impose export tax on metals
The economy minister of Russia, Maxim Reshetnikov, announced that the government was contemplating adding an export duty of at least 15% for steel, nickel, aluminum and copper, effective Aug. 1 through the end of the year.
The measure comes as an effort to protect its defense and construction industries as metal prices continue to rise globally.
However, these tariffs could have a particularly negative global implication for the aluminum market. Rusal controls about 10% of the global aluminum sector.
Moreover, Russia is the second-largest exporter of primary aluminum to the U.S. As such, the U.S. domestic aluminum market would feel an even bigger squeeze, causing further increases in the Midwest premium.
Tight supply
According to Bloomberg, buyers in Japan agreed to pay a premium of $185 per ton above LME prices for the coming quarter, the highest in six years.
This is a sign of a tight aluminum market. As the World Bureau of Metal Statistics reported this month, the aluminum market from January to April 2021 posted a deficit of 588,000 tons.
The deficit is due to a rapid turnaround in the economy. Demand slowed as travel declined early on during the pandemic but has since snapped back strongly.
The price rally has triggered several countries to take measures to help put a cap on price increases. Russia appears poised to implement export tax changes. Furthermore, China plans to release strategic reserves of the metal for the rest of the year.
New aluminum recycling plant
Norwegian industrial company Hydro Aluminum Metal signed a letter of intent to purchase a property in Cassopolis, Michigan, with the objective of building an aluminum recycling plant. The plant will produce aluminum extrusion ingot for use in critical automotive applications, in addition to other transportation and building systems.
The plant is estimated to cost a total of $120 million with a 120,000-metric ton capacity. The final product will be Hydro’s signature “Hydro CIRCAL® extrusion ingots, which contain at least 75% post-consumer scrap certified by third party auditors DNV GL.” The ingots have a CO2 footprint of 2.3 kg CO2e/kg aluminum, Hydro said.
Actual metals prices and trends
LME three-month aluminum increased by 4.1% month over month to $2,535 per metric ton as of July 1.
Chinese primary cash aluminum decreased by 2.0% to $2,901 per metric ton. Chinese aluminum scrap declined by 1.3% to $2,060 per metric ton. Meanwhile, Chinese aluminum billet went down by 1.3% to $2,380 per metric ton.
European 1050 aluminum sheet increased by 2.0% to $3,649 per metric ton.
Indian primary cash declined by 2.2% to $2.266 per kilogram.
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Russia’s plan to introduce from Aug. 1 a temporary export duty on metal exports has brought varied reactions from European industry watchers and market participants.
“It’s about showing the strength of the Russian metals industry,” one analyst told MetalMiner.
Russia’s planned tariff may also be a retaliatory measure against Europe and its proposed carbon tax on metals imports from high-carbon producers, of which Russia is one, the analyst added.
“It feels like it is a broadside shot,” the analyst said.
The MetalMiner Best Practice Library offers a wealth of knowledge and tips to help buyers stay on top of metals markets and buying strategies.
Russia export duty to cover steel, base metals
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The Russian Federal Government’s Decree No. 988 of June 25 stipulates a 15% export duty from Aug. 1 to Dec. 31 on all steel – semi-finished and finished – as well as on copper nickel, and low-grade aluminum leaving the country and the wider Eurasian Economic Union (EAEU).
Member states of the EAEU include Armenia, Belarus, Kazakhstan, Kyrgyzstan and Russia. In addition, Cuba, Moldova and Uzbekistan are observer states.
One of the more likely beneficiaries in Europe from the duty is the steel sector, sources told MetalMiner.
“Everybody loves this,” one analyst said about Russia’s tentative export duty, as it could further push up already-high prices for steel products in Europe.
Domestically produced hot rolled coil for Q4 production within Western Europe is now €1,170-€1,200 ($1,390-1,420) per ton exw, traders said. That marks an increase from the €1,120-1,130 ($1,370-1,385) reported earlier in June.
Planned shutdowns of rolling equipment or banking of hot ends for maintenance over Europe’s summer months could also further push up prices in the face of high demand throughout Western Europe, the analyst stated.
One steel trader voiced a similar opinion.
“This is great for everybody” the trader noted, as the decree will push up steel prices on both the domestic and import markets.
“Who’s gonna wait until the end of the year to acquire steel if Russia is out of the market?” the trader rhetorically asked.
Ukraine’s Metinvest is likely to also benefit from this. The group is a major supplier of long products into the E.U. Resulting higher prices will also mean more revenue.
However you slice and dice the statistics — and there are numerous ways stats can be sliced and diced — the global aluminum market is tight.
Whether we look at primary ingot, extrusion billet or rolling slab intermediates, or semi-finished sheets/plates, tubes and extrusions mill lead times are long and conversion premiums are high. Meanwhile, the global economy has bounced back from the pandemic. Local distortions, such as tariff barriers, to traditional supply chains have added to bottlenecks and robust restocking.
The MetalMiner Best Practice Library offers a wealth of knowledge and tips to help buyers stay on top of metals markets and buying strategies.
Aluminum deficit to surplus
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According to the International Aluminum Institute (IAI), total global aluminum production rose to 5.74 million metric tons in May. The total marked its highest level and a rise of just under 6% compared to this time last year.
Admittedly, last year was distorted by the pandemic. However, from January through May, global smelters operated normally around the world. The pandemic hit consumption badly, but output remained resilient.
Not surprisingly, therefore, this year to date swung to a 588,000-ton deficit compared to over a 1-million-ton (1,074 kt) surplus, as reported by the World Bureau of Metal Statistics for the whole of last year.
It would seem Beijing only has to speak and the market reacts — this time, it’s about base metals.
Worried by what it sees as excessive inflation in commodity prices, which it fears will lead through into factory gate increases, China warned speculators last month over “excessive speculation.” The warning from China’s National Food and Strategic Reserves Administration hit the iron ore market hard, the Financial Times reports, sending the price 10% lower.
This month, Beijing has turned its attention to base metals.
The authorities have hinted they may release metal from their strategic reserves. The move would be an overt attempt to dampen further price rises in what it sees as a speculator-fueled rally. Where applicable, it would provide additional supply for those metals where supplies are genuinely tight.
The country holds strategic reserves in copper built up over decades. During slumps, like after the financial crisis, Beijing has stepped in to support domestic producers.
State secrets
As a strategic reserve, copper stocks are a state secret.
According to Reuters, Beijing’s target of peak coal use by 2030 is asserting a dampening effect on new steel mill and aluminum smelter investment.
As such, the country could be at or near peak production. As Reuters’ Andy Home notes, the country’s rising output over the years as had a dampening effect on prices. That trend has led some Western producers to cease operations.
But a combination of harsher environmental legislation resulting in Beijing dissuading investment in new coal fired power projects, combined with Western markets’ meaningful action — after years of simply complaining — to block out Chinese exports of aluminum and steel products suggests the Chinese impetus to build capacity and the rest of the world’s willingness to buy product are both going through a transformational change.
The Construction Monthly Metals Index (MMI) held flat for this month’s reading.
With volatile steel markets, knowing which strategy to execute and when can make all the difference between saving and losing money. See how MetalMiner looks at different market scenarios.
US construction spending ticks up in April
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U.S. construction spending reached a seasonally adjusted annual rate of $1,524.2 billion in April, the Census Bureau reported.
The estimated April rate marked a 0.2% increase from the previous month and a 9.8% increase on a year-over-year basis.
Construction spending amounted to $452.3 billion during the first four months of the year, or up 5.8% from the same period in 2020.
Meanwhile, private construction spending reached a seasonally adjusted annual rate of $1,180.7 billion, up 0.4% from March. Under the umbrella of private construction, residential construction increased by 1.0% to a rate of $729.2 billion in April. Nonresidential construction fell by 0.5% to $451.4 billion in April.
Public construction spending fell 0.6% to $343.5 billion. Educational construction spending fell 0.5% to $84.8 billion. Highway construction rose 0.6% to $99.8 billion.
Construction employment declines in May
On the labor side, employment in the construction sector fell by 20,000 in May, the Census Bureau reported. Employment in construction is down by 225,000 from February 2020.
The Associated General Contractors of America noted contractors continue to struggle with unpredictability with respect to securing materials.
“Steadily worsening production and delivery delays have exceeded even the record cost increases for numerous materials as the biggest headache for many nonresidential contractors,” said Ken Simonson, the association’s chief economist. “If they can’t get the materials, they can’t put employees to work.”
ABI posts growth for third consecutive month
For the third straight month, the Architecture Billings Index, released monthly by the American Institute of Architects, showed growth (meaning an index value greater than 50).
After the onset of the pandemic, the ABI had contracted each month for a year until the February 2021 reading.
For April, the ABI checked in at 57.9, up from 55.6 the previous month. The design contracts index reached 61.7, up from 55.7 the previous month.
The ABI marked its highest level since before the Great Recession.
“Interest in new projects remained extremely strong as well, with the Inquiries score rising to 70.8, and the value of new signed design contracts reaching 61.7, the highest score in that index since data collection started in late 2010,” the ABI report stated. “This means that not only are clients talking to architecture firms about starting new projects, but that they are also signing contracts to begin that work at a high rate.”
By region, the Midwest led the way with an ABI reading of 60.6. Trailing the Midwest were the South (58.3), Northeast (55.0) and West (52.4).
As we’ve noted in this space on a regular basis, shortages and delays in receiving materials have had a ripple effect. The sudden surge in demand throughout some sectors has produced a bullwhip effect.
The ABI report noted the 0.8% jump in the Consumer Price Index from March to April and the 4.2% jump from April 2020 to April 2021, which marked the largest increases since before the Great Recession.
“In addition, core inflation rose by 0.9% in April, the largest increase in that indicator since 1981,” the ABI report notes. “Rising consumer prices at this time are largely caused by supply constraints due to a shortage of key inputs subsequently leading to production delays, and by rising demands for services, particularly travel and hospitality.”
Pending home sales drop in April
Meanwhile, in the housing market, pending home sales fell by 4.4% in April, the National Association of Realtors (NAR) reported.
“Contract signings are approaching pre-pandemic levels after the big surge due to the lack of sufficient supply of affordable homes,” said Lawrence Yun, NAR’s chief economist. “The upper-end market is still moving sharply as inventory is more plentiful there.”
Actual metals prices and trends
The Chinese rebar price dipped 0.7% month over month to $802 per metric ton. Meanwhile, the Chinese H-beam steel price fell 2.3% to $815 per metric ton.
The U.S. shredded scrap steel price rose by 3.2% to $450 per short ton.
The European 1050 commercial aluminum sheet price rose by 0.4% to $3,577 per metric ton.
The Atlanta-based aluminum firm Novelisannounced it is partnering with China’s leading universities to conduct research into the innovative use of aluminum.
The partnership between Novelis’ Shanghai Customer Solution Center (CSC) and the Tsinghua University Suzhou Automotive Research Institute (TSARI), confirmed by way of a memorandum of understanding (MoU) will drive research and development of aluminum products to promote a “low carbon, sustainable future.”
Novelis is a subsidiary of India’s Hindalco Industries Ltd. The company accounts for almost half of Hindalco’s consolidated revenue.
Furthermore, with operations in 10 countries, Novelis is one of the largest aluminum recyclers in the world. It reported U.S. $11.2 billion in net sales for the most recent fiscal year.
The MetalMiner Best Practice Library offers a wealth of knowledge and tips to help buyers stay on top of metals markets and buying strategies.
Novelis in China
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However, Novelis already has a significant presence in China.
Back in May, for example, the aluminum major announced that it would supply Nissan with a sustainable, lightweight aluminum body sheet for the all-new Qashqai SUV and create a closed-loop recycling system in Europe.
The Aluminum Monthly Metals Index (MMI) increased by 0.9% this month, as aluminum prices reached a nine-year high during the first half of the month but later declined.
The LME aluminum price reached a nine-year high May 10 when it reached $2,565/mt.
Since then, prices dropped below the $2,500/mt mark, averaging $2,434/mt throughout May.
Chinese prices behaved similarly to the LME. They reached a peak of CNY 20,030/mt on May 10 but have declined since then.
EPI study claims tariffs incentivized US domestic production
On May 25, the Economic Policy Institute (EPI) published a white paper that argues the domestic aluminum producing and consuming industries have thrived as a result of the Section 232 tariff that former President Donald Trump implemented in March 2018.
As MetalMiner reported last week, the EPI report argues the 10% duty has led to job growth in the sector and increased production.
The paper concluded that U.S. production of primary aluminum, including both alumina refining and secondary smelting and alloying of aluminum, increased by 37.6% to 1.14 million metric tons annually from March 2018 to February 2020. This increase came from the restart or production increase of five of the six smelters in the U.S.
