Steel Products Prices North America

CRU Aluminum: LME Rallies as Fed Pauses Rate Hikes

June 16, 2023

The US Federal Reserve has taken some pressure out of the market by announcing a pause in interest rate hikes, leaving rates at 5% to 5.25% after more than a year of consecutive rate increases. The decision on Wednesday came a day after official figures showed US inflation was 4% – the lowest pace of increases in more than two years. The effects of the higher rates were starting to become apparent as both inflation and consumer demand falters heading into the middle of the year. The housing market has taken the biggest hit thus far, with both new housing starts and permits falling steadily as supply starts to build. This pause in rate hikes, however, do add more weight to the momentum of the second half of the year.

The LME rallied as a result, with the three-month price moving up again on the morning of June 16 and was last seen trading at $2,275/tonne. Meanwhile, SHFE aluminum prices also registered solid gains that day on more positive economic news out of China’s ongoing recovery. The cash price settled at RMB18,550/t and last traded at RMB18,665/t, up almost 1.5% compared to the previous day.

Physical Demand Bumps Up But Still Down Y/Y

The US Aluminum Association (AA) also released new data recently, which was the latest “Index of Net New Orders of Aluminum Mill Products” report for May. According to the release, total orders were down 7.3% over May 2022 and up 4.2% against April 2023. The report shows a small improvement from the contraction of 9.6% year on year (y/y) seen in April, but also indicates that some key sectors like extrusions remain weak. Physical shipments also improved slightly last month but remain suppressed compared to the boom of 2022.

The two segments struggling the most are can sheet and extrusions. Can sheet is coming off a strong three-year growth period, which spurred new investments throughout the value chain. Last year, demand was through the roof, and as such the domestic industry looked to imports to fill critical supply gaps. The subsequent sudden slowdown in Q4 combined with the longer lead times of those imports to create a significant inventory overhang heading into 2023. Reports from throughout the value chain show that it is still an issue even as Q2 comes to a close and will be a limiting factor for growth this year.

Extrusions followed a similar fate with higher imports and demand slowing rapidly in the second half of 2022. Automotive demand is still buoying shipment data, as build rates are steadily climbing and with no reasons to believe this trend will come to an end anytime soon.

Overall, these near-term economic headwinds have not dented the long-term outlook significantly. Can sheet is still expected to grow based on secular trends such as a preference for the aluminum can due to recyclability trends. Extrusions will benefit from an increased tons per vehicle for the next generation of electric vehicles (EVs) and higher intensity in modern housing and office spaces.

Hydro Announces First Batch of Recycled Aluminum Using Hydrogen

Hydro has produced the world’s first successful batch of aluminum using green hydrogen as an energy source, it was reported by the company on June 15. Carbon-free green hydrogen replaced natural gas as fuel for the recycling of aluminum during the test. The test was carried out at a cast house in Hydro’s extrusion plant in Navarra, Spain.

The test was conducted and led by hydrogen experts from Hydro Havrand, Hydro’s green hydrogen company, and in partnership with Fives, an industrial engineering group with expertise in hydrogen burner technology and solutions for the aluminum industry. Hydrogen has previously been used in lab scale tests.

The test in Navarra is the world’s first known successful industrial scale test of using hydrogen as an energy source in aluminum production. The aluminum produced in the test will be used in Hydro Extrusions’ Navarra facility to make the world’s first extruded profiles using hydrogen. The results from this test can also be relevant for using hydrogen in primary aluminum cast houses, Hydro said, and in other high temperature processes – like glass or cement. Hydro and Fives are currently analyzing the test results and a final report from the test is expected to be ready in the autumn.

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

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