CRU: High Prices, High Volatility Continue in Aluminum

Similarly, the U.S. Mid-West premium has hovered near $.35/lb during this last week of supply ups and downs. Alongside the supply constraints in China (both energy and primary aluminum) come more positive notes that labor and management at the Kitimat smelter (BC) have reached an agreement in principle and that Alcoa will restart the Alumar smelter in South America. Both primary facilities are returning production capacity to the market, but not until sometime in 2H2022. Nonetheless, it is good news for the supply side.

The Alcoa restart is reported to be on the strength of current supply-demand balance and the likelihood that the LME values will sustain investments and a reasonable ROI at these new levels. As indicated last week, a reasonable LME price may bring future capital investment in the West.

CRU’s forecast remains that 2021 and 2022 will have sustained physical metal deficits of more than 1 million tons.

Semis Demand Rolling Strong into Q4

Apart from aerospace, every aluminum end-use segment continues to gobble up pounds. Sheet, plate, WRB and extrusions have all hit month/month and year/year demand milestones. Sheet and plate tallies are +13.6% YTD alongside extrusions shipping at a brisk pace ahead +18.5% YTD. Even where there are soft spots in the auto body sheet (ABS) segment where the chip shortage persists, rolling mills are finding easy opportunities to transition to aluminum can stock and general fabrication alloys where hungry can makers and service centers await any windfall tonnage, at any price.

Aluminum can sheet shipments from mills are up nearly 5% year over year, and are still unable to meet beverage can demand, up 9% YTD. To fill the supply gap, can makers are importing empty beverage cans from AMENA and China, absorbing exorbitant container transit costs and unpredictable deliveries. Short supply is confounding the strong demand for aluminum beverage cans.

In this environment of elevated LME prices, short supply and heated demand, producers and consumers have entered the 2022 contract season early. Consensus remains that not everyone will get the supply volume they need to meet production demands, regardless of where you sit in the value chain. One certainty is that prices ahead will be higher, both for underlying metal values and conversion fees, notwithstanding the shared concerns on logistics and coatings. The confluence of supply and demand volatility will force a focus on strategic suppliers and customers with clear definition and prioritization of the business principles and practices.

(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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