CRU Aluminum: Shifting Trade Flows an Important Trend Across the Value Chain

The shift in import trends has also been a major topic and is ongoing for VAPs down to rolled products and extrusions. Interestingly this was in the face of port disturbances, long freight times and ballooning costs, and other macro variables that plagued supply chains through the early parts of the year. However, most were out of necessity to keep up with the incredible post-pandemic demand boom.

As things start to slow, imports will continue to fall under scrutiny and will test if these new relationships will have lasting effects.

VAPS And Primary Started Off 2022 with Record-High Volumes

When looking at the import trends for primary and VAPs, it was a tale of two halves. Right from the start, January saw a historical high set for total aluminum primary imports. Most of this tonnage can be attributed to an increase in billet coming from UAE and India as overseas producers looked to capitalize on strong demand trends in North America.

The demand boom is most likely responsible for this shift as producers were scrambling to pump out as much as possible. In the second half of the year, imports of VAPs have cooled alongside demand which likely will lead to a more “normal” 2023.

The billet market has shifted in response to demand uncertainty as some are choosing to forego annual contracts for the time being and instead shift their aluminum needs to the spot market. The Midwest premium has finally found support at current levels and inland trucking costs also come off their peak, making spot markets more attractive.

The increased availability of imports likely played a role in this decision as well and will be something to watch unfold in the coming year.

Further Downstream Has Been Affected as Well

Extruders and rollers have also seen shifting trade flows over the course of the year.

Starting with extrusions, imports of extruded products as reported by the Aluminum Association have continued to increase both in volume and in the percentage of total shipments. A second data point in the form of HS code 7604, which is a catchall for extrusion-like shapes, also has continued to increase throughout the year.

The largest increases have come out of Mexico, Turkey, and Vietnam with large one-off orders coming from Indonesia as well. Digging into the bill of landing data, most of this supply is directed towards B&C end use with some heading towards automotive as well.

Construction is expected to slow the most in 2023 as the housing market will continue to be challenged by rising interest rates. Transportation will remain steady but what was once almost double-digit growth expectations have been tempered. As extrusion shipments overall will struggle to see any growth next year, import trends will be a top-of-mind issue for domestic producers.

For rolled products, the biggest shift can be seen by looking at can sheet, the fastest-growing segment of the market in recent years. As the incredibly inefficient import of empty cans in 2021 ceased this year, imports of can sheet into the US increased by over 30%. On top of that, the source of imports also changed dramatically as imports from Saudi Arabia fell off and the tonnage coming from China remained consistent YoY while South Korea and Thailand gained a large percentage of share. Exports from China overall hit their highest yet at over 1 million tons as they gain market share in Europe, Southeast Asia, and Mexico.

Like extrusions, can sheet growth rates are expected to slow off the frenetic post-pandemic pace of recent years however will remain positive. Deficits will remain in both Europe and North America which will present opportunities for exports to continue but at a slower rate. However, come 2025 when the new rolling mills are expected to start coming online, the question again will be if these imports will be positioned to displace any domestic capacity as the deficit closes.

Trade Policies Will Play an Important Role

As we saw with the renewed interest in section 232 and 301, trade policies will be under increased scrutiny going forward. Hot topics include the full economic impact of section 232 and the impacts of the exclusion process on extrusions specifically in which there is a blanketed exclusion in place.

Also, with the war in Ukraine still raging on and other geopolitical uncertainties around the world, the push for onshoring, and friendshoring is gaining traction. With new policies such as the Build Back Better plan, Inflation Reduction Act, CHIPS, and so on, new limits have been set for how much of an end-use product must be made in the US for it to be considered a domestic product.

 With this push affecting both automotive and construction, there will be a trickle-down effect on the origin of aluminum. It is not all domestic policies either, as just this week China announced new increased export tariffs on primary aluminum and aluminum alloy.

LME and Midwest Prices

LME prices have bounced across the recent trading range in December from a high that crested just above $2,500 per ton to a low of $2,385 per ton. The mix of positive and negative sentiment in the global markets affecting the LME will keep the values range bound until a clear signal is identified, in either direction.

Midwest premiums for spot are hovering at $0.20 per pound but are leaning higher as the New Year is expected to see renewed trading as firms re-open and people return from holidays. The Midwest premium should advance as activity returns and recover in 2023. Prices for the second half of 2023 are offered at $0.2350–0.2375 per pound. Replacement cost from overseas remains near $0.25 per pound and the market gap between spot and future delivery costs will close.

Only the clean-up from the Christmas weekend storm that walloped most of the US may slow the return to physical trading.

As demand waned throughout the fourth quarter of 2022, billet negotiations stalled. Some buyers will wait to see what the New Year brings for the 2023 billet supply contracts not yet fully concluded. Spot buying will fill the gap in the near term, now trading at $0.20–0.23 per pound over Midwest P1020.

By Matthew Abrams, Research Analyst, CRU Group