CRU: Aluminum Volatility Reigns on Energy and Hardener Concerns

The Mid-West premium has been range bound for a couple of weeks, near $.35/lb, as anxious buyers and sellers wait for a significant jump in prices. With both the Mid-West premium and the LME showing lower tags through 1H22, not much forward buying is taking place given the uncertainty ahead.

Conversion fees for FRP are just beginning to show the impact of the short Mg and Si supply with one major North American producer publishing an announcement increasing conversion fees as a proxy for hardener cost pass throughs. The China supply constraints are first being felt in the Asian basin and in Europe where China-sourced Mg accounts for 90% of supply. North American producers have yet to feel any physical metal supply pinch, although the price impact is imminent. Mills continue to meet the strong demand requests from all end-use segments despite the jittery behavior of underlying metal values.

Orders Solid, Shipping and Not Building Inventory

Every aluminum end-use segment continues to compete for available mill hours and press time. Large circle size extrusion presses, 10-inch diameter and greater, are feeding the demand for consumer durable goods, and transportation end-use segments either directly or via service centers. Extrusion press utilization rates are near maximum at 80% of available uptime.

Sheet and plate mills continue to post month/month and year/year production milestones. August sheet and plate tallies were +3% greater than July, and the industry is running +13.6% YTD with general fabrication alloys (3003, 3105, 5052) setting the pace.

Both CRU client feedback and Aluminum Association data indicate that robust shipments reflect sustained end-use demand and no volumes left for restocking. Total inventories are lower m/m by 1.5%, yet are at healthier levels than a year ago when labor forced inventories nearly 20% lower than today. Coated sheet for the transportation and construction segments may be an exception as late paint deliveries are causing stocks to build behind coating lines, further expanding the bubble of demand for coated sheet products.

With some potential for supply chain disruption, caused by short Si and Mg supplies, the value of secondary metals units and scrap-toll programs with contained Mg (5xxx alloys) become strategically important. CRU would expect that Mg-contained alloys may transact at a premium to LME values if primary metal units become scarce. In some instances, forward contract negotiations may be paused or clauses added as contingencies for wide swings in hardener price and availability.

(Editor’s note: CRU’s Steve Williamson is filling in for Greg Wittbecker, who is out until Oct. 22 on an extended holiday. Steve can be reached at stephen.williamson@crugroup.com.)

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