CRU: Aluminum—Price Breakthrough

The Mid-West premium remains range bound for a third week, near $.35/lb. 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 will be going up on any short supply of Mg and Si supply. Several North American rolling mills have made price announcements increasing conversion fees $.10-$.20/lb as a proxy for hardener cost pass throughs. North American producers have yet to feel any physical metal supply constraints, most with ample supply going into the new year. Mills continue to meet the strong demand requests from all end-use segments despite the higher costs of aluminum and alloy hardeners.

Mill Shipments on Record Pace

While September’s shipment data lagged August, both YTD and Y/Y forecasts indicate that the industry is headed for production milestones. September sheet and plate tallies were -6% less than July, and the industry is running +13.1% YTD with general fabrication alloys (3003, 3105, 5052) nearly 30% ahead of 2020. These numbers look more impressive when considered alongside the recent softness in auto demand and lackluster performance of aerospace end-use applications.

CRU is reducing its forecast for automotive demand in 2021 as the semiconductor chip shortage continues to constrain car and truck assembly plants. Lowering the 2021 auto body sheet consumption forecast by 12%, CRU sees additional penetration and growth ahead for auto body sheet in 2022, an increase of over 240,000t, but from a lower base achieved in a supply constrained 2021.

Scrap Unable to Fill the Supply Gap

The well documented tightness in the primary aluminum market has some thinking that scrap might provide an alternative solution, but that is far from being the case:

• Semiconductor shortage impacts supply of automotive scrap: New production automotive scrap supply has declined due to the slowing of assembly operations at many OEMs because of the semiconductor chip shortage. During the initial phases of the shortage, Tier 1 and 2 suppliers had maintained reasonably high production rates for stampings and other rolled formed components, but are now reducing run rates to manage inventories better.

• More mixed low copper clips but fewer segregated alloys: An extension of this slowdown has been the mix of segregated versus mixed low copper clips (MLCC). Due to the lack of uniform sortation practices at some of the legacy stamping plants (due to space limitations to install new, state-of-the-art sorting and conveying equipment), we are seeing a lot of MLCC being generated as opposed to segregated alloy. The MLCC enjoy a much less broad market than segregated, going to the common alloy mills versus specialty mills for automotive, cans and aerospace. While common alloy mill capacity utilization is fully booked and demand is strong, the MLCC supply exceeds short-term demand. This explains why the MLCC discount to segregated material remains very wide, at up to $0.45 /lb discount. Sortation remains too slow to debottleneck this problem and manual sortation due to its high cost and the lack of labor is not a solution.

• Availability of extrusion scrap is virtually non-existent: Press scrap continues to circulate almost exclusively under toll conversion deals, while production of secondary billet is getting top priority as spot billet upcharges can reach up to $.30/lb over Midwest duty paid P1020. This means there is virtually no press scrap being sold into the third-party market, leaving only 6063 10/10 packages or 6063 new production fabrication scrap available to casting extruders and traders.

• UBC are experiencing their seasonal surge in supply and prices are weakening: Spot prices at $.83-.88/lb represent about 55% of the current Midwest P1020 price, which is approaching the percentage lows of last summer. The strong rally in LME and Midwest prices also has helped widen the discount. The can sheet mills are running fully, and demand is strong. However, we also hear that can mills have already secured their requirements for September, which means UBC are now being tolled into RSI (Remelt Scrap Ingot) instead for sale during the winter, when collection rates decline.

EU Suspends Trade Duties

In the current environment of strong demand and tight supply of aluminum fabricated products, the European Union has suspended certain duties previously levied on imports from China.

In two separate but related announcements, the European Commission (EC) announced in an official statement that it would suspend these antidumping duties for a period of nine months. The EC considers that Chinese imports of the concerned products are unlikely to result in any injuries “given the temporary nature of the change in market conditions concerning demand and supply, and in particular the current imbalance between demand and supply on the Union market,” the EC said.

In recent years there has been a growing number of countries filing trade actions against aluminum products originating from China. In the past year or so the EC and the U.S. Department of Commerce came forward with antidumping tariffs on Chinese extrusions, rolled products as well as some foil products. While the EC and U.S. Department of Commerce act independently, this move by the EC warrants the attention of U.S. producers and respective trade associations with ongoing defensive actions.

It should be noted that the European Aluminum association did speak up in opposition to the move by the EC. Not wanting to give up the level playing field finally achieved for fair competition, the trade association indicated that it would pursue all available avenues to keep the duties in place. With both steel and aluminum products, covered together in Section 301 of the Trade Act of 1974, this move by the EU is worth noting and following how the U.S. Trade Representative may react.

(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.)

Request more information about this topic.

Learn more about CRU’s services at www.crugroup.com