CRU Aluminum: The LME Gives Up $2,300 Price Point

US Midwest Premiums Still Sluggish Awaiting New Demand

The US Aluminum Association (AA) released its shipment report for sheet and plate covering April 2023. According to the association, rolled product shipments by North American producers totaled 756.5 million (M) pounds, representing a drop of 8.3% year on year (y/y). A similar drop was seen against March, down 8.6% month on month (m/m). This means that for the year-to-date (YTD) period up to April, shipments now amount to 3.1 M pounds, which is a drop of 3.2% vs. the same period last year.

The report is clearly a disappointment as March shipments only showed a decline of 2.3% y/y, indicating the sector was stabilizing after a weak end of 2022. This is actually the worst y/y decline since May 2020 when shipments were heavily impacted by the pandemic (-24% y/y) and worse than the December 2022 shipments (-5.4%).

The report follows the Index of New Orders for April, which also showed a severe decline of 9.6% y/y, although we noticed improvement in some orders for heat-treatable sheet and plate. This was obviously not enough to offset the weaker orders elsewhere.

The shipment report for extruded products in April 2023 was similarly bleak. According to the association, extrusions shipments by North American producers totaled 382.1 M pounds, representing a drop of 16.2% y/y. For the YTD period up to April, shipments amount to 1.6 M pounds, which is a drop of 12% vs. the same period last year.

In regard to extrusions, expectations were not high due to consistently low order rates, but the smaller contractions seen in January and February could have indicated a return to growth soon. Instead, the sector went deeper into contraction in March (-14.6%) and this time in April (-16.2%). The report follows the Index of New Orders for April, which also showed a severe decline of 9.6% overall against last year. As for new orders for extruded products, they only improved slightly, from a decline of 24.1% y/y in March to a still severe drop of 16.1% in April.

Long-term Outlook Remains Optimistic

The drop in demand is more than just a North American issue as similar trends are seen globally. China is still working on recovering fully after their zero Covid policy and the war in Ukraine continues. This near-term pessimism has done little to deter the optimism for long-term demand. New rolling mill investments are all still on track despite being slightly delayed due to the lead times for critical mill components.

Recently there was another new announcement for a greenfield rolling investment by Diageo in the UK. New extrusion investments are also still continuing with Service Center Metals, Sierra Aluminum, and others completing large projects recently. More, including the most recent announcement for Nemak included plans for a large expansion with a focus on lightweight automotive extrusions.

Federal Reserve Annual Report Highlights Drop in Global Trade

Recently, the US Federal Reserve also released their yearly report for 2023. This year, the focus was on the decline in global trade and the focus on “friend-shoring.” In 2011, US global trade as a share of GDP peaked close to 31%. Since then, there has been a slow decay signaling that this trend of a decline in world trade started well before Covid-19, but many of the events over the past few years accelerated it. The Fed’s report highlighted a few reasons for the decline including the development of trade blocs, geopolitical tension, critical goods, and risks to the global value chain.

Trade blocs were recently upgraded in North America with the strengthening of the US Mexico Canada Agreement (USMCA) and other new legislation such as the Inflation Reduction Act have language that focuses on rules of origin. Geopolitical tensions rose to new highs when the war in Ukraine broke out and have only grown as it continues. The war on the heels of Covid-19 emphasized the potential risks of relying on global supply chains for critical goods and metals. This was most noticeable in the automotive supply chain and semiconductors. These all also played into the high inflation levels seen throughout many major economies. For aluminum, the new investments are looking to take advantage of more demand for regionally produced metal, but globally supply chains will still need to adjust to these macro disturbances.

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By Matthew Abrams, CRU Research Analyst, matthew.abrams@crugroup.com