Aluminum

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A relatively swift exit from pandemic lockdowns and the impact of stimulus-led infrastructure investment have powered China’s metals rebound. Furthermore, the Shanghai Futures Exchange has continued its summer disconnect from the London Metal Exchange aluminum price, which started in April of this year.

The resulting arbitrage window has sucked in imports of aluminum primary and remelt alloy casting ingot. As a result, China’s imports are at levels not seen since the aftermath of the financial crisis in 2009.

Are rising MW premiums causing concern? See how service centers take advantage of that. 

China leads the metals rebound as aluminum imports surge

Combined imports of primary metal and unwrought alloy totaled 393,000 tonnes, just shy of the previous record of 394,000 tonnes in April 2009, according to Reuters. Furthermore, cumulative net imports reached 653,000 tonnes so far.

Alloy imports should be seen as in part as a replacement for lower scrap imports. However, even so, the disconnect has continued through the third quarter. Although that disconnect is expected to narrow in the run-up to year’s end, it underlines the current two-speed nature of the global manufacturing economy.

Meaning, there’s China and then there’s the rest of the world.

China tightened up on scrap grade import controls last year and precipitated a switch to imports of refined remelt alloy over scrap, even before the pandemic took hold.

Southeast Asian regional remelters have taken in the displaced scrap and exported alloy ingot to China. A similar trend is taking place with copper scrap and alloy ingot, possibly suggesting a structural shift that is here to stay.

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This month the Aluminum Monthly Metals Index (MMI) remained flat for this month’s index value, as the SHFE aluminum price and its LME counterpart trended sideways this past month.

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

SHFE, LME prices’ behavior

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.

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No, we don’t mean that much-vaunted but still distant dream of India becoming a second China economically — the disparity expands rather than contracts with time — but rather could India become a pariah state after China in terms of feeling the pain of anti-dumping duties, quotas, and tariffs (particularly with respect to Indian metal exports)?

It has already happened in Europe on stainless steel long product. The E.U. has imposed an annual quota and punitive 25% tariffs for every kilogram over that limit in a bid to protect its domestic producers.

Are you under pressure to generate aluminum cost savings? Make sure you are following these five best practices!

With rise to No. 2, could Indian metal exports be next to face tariffs?

Last year, India ranked the second-largest steel producer in the world behind China. (However, India’s production totaled not much more than a tenth of China’s output.)

India is becoming a global force in many ferrous and non-ferrous metals.

Originally, the rationale was India’s huge population and low per-capita consumption of metals suggested growth prospects on a Chinese scale.

Such potential has led to considerable investment. A good level of domestic resource — iron ore in particular — has meant economies of scale have favored domestic growth prospects.

But slow GDP growth, a bureaucratic business environment and tortuous legal environment over land ownership have slowed what should otherwise have been a meteoric rise.

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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.”

Carbon steel

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).

Stainless steel

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.

For more information about the MetalMiner Insights platform and should-cost models, visit the MetalMiner Insights landing page. 

FurAccording to the Indian Financial Express, the country is intending to take a leaf out of the European Union’s book and introducing an import surveillance scheme for aluminum and copper imports.

Does your company have an aluminum buying strategy based on current aluminum price trends?

India’s rising copper, aluminum imports

Like the E.U.’s scheme, the scheme will require importers to first register and then report imports. That way, the authorities can track the source and volume of imports.

Specifically, the government is focused on imports from China and other southeast Asian markets, the article notes.

Only by accumulating hard data can the country develop sensible policies, promoters of the scheme argue.

As such, China, Japan, Malaysia, Vietnam, and Thailand are among the major exporters of copper. Those countries accounted for 45% of India’s $5 billion in copper imports for 2019-2020, the article reports.

Meanwhile, aluminum imports amounted to nearly as much at $4.4 billion worth in 2019-2020. Of those imports, some 58% has been in the form of scrap this year.

China checked in as the biggest supplier, shipping aluminum worth just over $1 billion. Furthermore, the country has been a major supplier of semi-finished products, sometimes competing directly with India’s substantial domestic producers.

“China is a huge threat to India’s aluminium industry,” said B.K. Bhatia, joint secretary general at Federation of Indian Mineral Industries (FIMI), the country’s biggest mining lobby.

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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.

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This morning in metals news: India is looking to curb its imports of copper and aluminum; Rio Tinto and Turquoise Hill reached a financing agreement for the Oyu Tolgoi underground mine project; and Germany’s steel industry needs state aid.

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India targets copper, aluminum imports

India is looking to curb its imports of copper and aluminum, Reuters reported.

Per the report, India is particularly targeting imports from China and other Asian countries. Among the proposed measures is a requirement for importers to register with the government.

Rio Tinto, Turquoise Hill reach financing deal

Miner Rio Tinto and Turquoise Hill have reached a financing deal toward the completion of the Oyu Tolgoi underground mine in Mongolia.

“The MOU agreed today with TRQ provides a clear funding pathway for the completion of the Oyu Tolgoi Underground Project,” said Arnaud Soirat, Rio Tinto’s chief executive of copper and diamonds. “We will continue working with TRQ and the Government of Mongolia to progress the underground project, which has the potential to unlock the most valuable part of the mine for the benefit of all stakeholders.”

Rio Tinto has a 50.8% stake in Turquoise Hill.

With the current development schedule, Turquoise Hill expects the massive copper-gold mine will be the world’s third-largest copper producer at peak metal production in 2025.

IG Metall head says German steelmakers need state aid

2020 has been a difficult year for Europe’s steelmakers.

Already battling imports, European steelmakers have struggled on the heels of the coronavirus pandemic and its resulting impact on demand.

In Germany, IG Metall head Joerg Hofmann said the country’s steelmakers need state aid, Reuters reported. In addition, German steelmakers need to form alliances in order the facilitate the transition to greener fuels for blast furnaces, Hofmann argued.

Are you prepared for your annual steel contract negotiations? Be sure to check out our five best practices. 

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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.

Stop obsessing about the actual forecasted aluminum price. It’s more important to spot the trend. See why.

Global output rises in July

According to the International Aluminum Institute, global aluminum production in July totaled 5.45 million metric tons.

The July total marked a 2.8% increase from the 5.30 million metric tons produced in June. Production totaled 5.41 million metric tons in July 2019.

Estimated Chinese production reached 3.13 million metric tons, up 3.3% from the 3.03 million metric tons produced in June. Production in July 2019 totaled 3.06 million metric tons.

Meanwhile, production in the Gulf Cooperation Council (GCC) countries reached 488,000 metric tons in July. The July total marked a 3.0% increase from the previous month.

Production in east and central Europe totaled 349,000 metric tons, up 2.6% from the previous month.

North American production reached 333,000 metric tons in July, up slightly from the 330,000 tons the previous month.

Asian production ex-China reached 343,000 metric tons in July, up from 337,000 tons the previous month.

Aluminum tariff goes into effect

Earlier this month, President Donald Trump announced the reimposition of the 10% Section 232 aluminum tariff on some Canadian aluminum.

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).

Do you know the 5 best practices of sourcing metals including aluminum?

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Following on from an investigation started in February, the European Commission has launched an anti-dumping investigation into imports of aluminum flat-rolled products from China.

The trade group European Aluminium made the formal complaint to the European Commission.

Stop obsessing about the actual forecasted aluminum price — it’s more important to spot the trend. 

Products included, not included

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).

Carbon intensity of European primary aluminum production is approximately 7kgCO2e per kg of aluminum, according to European Aluminium.

Meanwhile, the global average is 17kgCO2e per kg of aluminum. The Chinese average is 20kgCO2e per kg of aluminum.

The investigation will take up to 15 months. As such, the E.U. is unlikely impose measures before March 2021 at the earliest.

In the meantime, importers will no doubt start diversifying supply sources to protect their supply chains. The trade will not want to be left with metal in the system when the E.U. makes a decision.

The impact is likely to be felt during the second half of this year as buyers diversify away from Chinese sources.

Do you know the 5 best practices of sourcing metals, including aluminum?

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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 Association called the tariffs the “wrong approach.”

Furthermore, the tariff comes in a time when beverage makers are struggling with an aluminum can shortage.

For the buyers out there, if you are under pressure to generate cost savings in aluminum, steel or anything else, make sure you are following these five best practices.

But the tariff storyline is but one thread in the world of metals.

Before we head into the weekend, let’s take a look back at the week that was:

MetalMiner Week in Review, Aug. 10-14

• Stuart Burns took a look at the shipping industry and how rates are faring several months into the global pandemic.
• With an eye to the November presidential election, Burns also broke down Democratic presidential hopeful Joe Biden’s plan for net-zero electricity emissions.
• Copper prices trended sideways last month, Maria Rosa Gobitz explained.
• Could the U.S. slap tariffs on Canadian steel once again?
• China’s aluminum imports skyrocketed in June.
• The Department of Defense is moving forward with rare earths projects slated for locations in Texas and California.
• The silver price has skyrocketed since March but showed signs of slowing this week.
• Chinese demand and supply concerns in Brazil have supported the iron ore price.

Want more from MetalMiner? We offer exclusive analyst commentary in our weekly, monthly, or quarterly updates – all metals, no sales fluff.