CRU: Aluminum news roundup

Downward pressure builds for the US Midwest premium           

The US Midwest premium was assessed slightly lower this week at $0.185–0.19 per pound, following five weeks of stability.

Despite the host of issues that would suggest an upward move for the Midwest premium in the short term, there was evidence this week to suggest the opposite. Trading on the CME pushed the one-month price under $0.18/lb earlier in the week. The downward move is a sign of the increasingly subdued sentiment to start the year and a reaction to the Fed’s position on keeping interest rates higher at the beginning of the year. This was emphasized further with the latest inflation data release which was higher than expected. Current spot is also lower w/w, now trading between $0.185–0.19/lb.

Dates further out on the curve also trended lower, consolidating just above $0.20/lb for the remainder of 2024. December 2024 had been trading as high as $0.22/lb in late 2023. The market is perhaps coming to terms with minimal demand growth expected this year, owed mostly to the sluggish start. It is worth mentioning that sentiment could change rapidly, especially considering the election later this year, with talks of further tariffs already creeping into the conversation. However, with government support building for the current onshoring trend and a trade case affecting a large portion of extrusions demand, the need for metal in the region could increase rapidly which would boost premiums.

Hydro’s Q4 results impacted by lower prices and extrusions results despite lower costs

Norsk Hydro released its Q4’23 results. The Norwegian producer posted an adjusted EBITDA of NOK3.737 billion ($350 million), lower both q/q (-4.1%) and y/y (-48%). As for the unadjusted EBITDA, it came in higher at NOK4.673 billion amid an unrealized profit on LME contracts totaling NOK954 million, partly offset by an unrealized loss of NOK33 million on power contracts. Overall, the lower adjusted EBITDA at the group level was mainly due to lower prices and weaker extrusions results, partially offset by lower raw material costs. 

The adjusted EBITDA for its primary metal division came in at NOK1.937 billion – a drop of 59% y/y but up 40% q/q. Hydro said the results were down y/y on lower all-in metal prices, reduced contribution from power sales and lower sales volume, partly offset by reduced raw material cost, adjusted CO2 compensation and positive currency effects.

Primary production came in at 514,000 mt, down 8,000 mt y/y and up by 2,000 mt q/q, while sales of 541,000 mt were broadly stable both from last year (-1,000 mt) and last quarter (+2,000 mt). The all-in price, including the premium, came down another $101/mt from Q3 at $2,477/mt, and down 12% y/y. The implied all-in primary cost, however, was down another $100/mt from Q3 at $2,125/mt and down from $2,250/mt in Q4’22. As for its outlook for Q1’24, Hydro said it expected raw material costs to continue decreasing. It also said it had around 67% of its primary production for Q1 priced at $2,255/mt and 46% of premiums booked at $373/mt.

Novelis profitability increases amid lower costs

US-based aluminum product manufacturer Novelis posted fiscal Q3 net earnings of $121 million, ten times more than the year-ago $12 million on the back of margin recovery. This was thanks to higher pricing and lower operating costs in the recycling side of business as a result of high inflation and geopolitical instability, according to the Atlanta-headquartered company. Yet sales revenue was down 6.4% to $3.93 billion in the three months. Deliveries were little changed at 910,000 mt in Q4’23 versus 908,000 mt in Q4’22. 

A decline in specialty product shipments caused by muted economic conditions in some markets was more than offset by continued growth in automotive shipments and a demand return for beverage packaging sheet, Novelis said. The company expects even better margins this quarter because shipments seasonally improve and Novelis will “drive more operating leverage,” said CFO Devinder Ahuja.

Furthermore, Novelis is currently constructing a cutting-edge, greenfield rolling and recycling plant located in Bay Minette, Ala. The facility is expected to have an initial production capacity of 600,000 mt of finished goods, specifically catering to the beverage packaging and automotive markets in North America. Notably, this project marks a significant milestone — it is the first fully integrated aluminum plant to be built in the US in nearly 40 years. Furthermore, it represents the largest project in the company’s history.

This article was first published by CRU. Learn more about CRU’s services at www.crugroup.com/analysis.