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Aluminum Premiums Outlook Update (January 13, 2020)

Executive Summary

1. US MW PREMIUM ALERT. Return of full contango and higher LME prices push up MW premiums (From January 8).

HARBOR's US MW P1020 Ingot Duty-Paid Consumer-Supplier Spot Transaction Premium increased today to 12.64–14.15 cent/lb (which equates to discounts of 0.35-1.86 cent/lb below current journalistic MW premium references), up from a previous 23- month low of 12.05–13.05 cent/lb. Spot activity returned after several weeks of absence, with spot premiums being supported by: a) the return of a full LME contangos; b) higher LME prices; c) firmer demand after the seasonal slowdown; and d) replacement costs have seen a slight increase in recent weeks.

More details in full report.

2. EUROPEAN BILLET UPDATE. Spot premiums decline further in Germany, Poland, Spain, Portugal, and the UK. Some extruders are back in the spot market (From January 10).

Various European extruders coming back from the holidays have now become active in the billet spot market. We understand extruders seem to have aggressively lowered their billet inventories before year-end and are now stepping back in the spot market to cover some needs. Regional spot billet premiums remain under pressure with practically all of the recently confirmed spot transactions taking place close to or below $300 per mton. Looking ahead, we expect the billet spot premiums to bounce back somewhat as higher LME prices, stronger Rotterdam duty-unpaid premiums and a slight pick-up in demand could feed a small premium rebound in coming months.

More details in full report.

3. MEXICO BILLET ALERT. Captive billet production in Mexico expands farther, imported billet volumes fall to fifteen-month lows (From January 7).

Mexico billet imports declined 22% y/y in November 2019 to its lowest level since June 2018; volumes from most origins fell. Domestic demand plummeted especially in H2 of 2019 amid a sharp B&C sector contraction, with most billet consumers long on metal, declaring minimums on their contracts, or directly rolling over metal intake. In this context, domestic billet inventories sharply increased in H2 2019. Moreover, it is worth noting that at least three Mexican extruders have expanded their internal capacity to produce billet. These increases will cannibalize at the least 60 kmton of imported billet.

More details in full report.

4. BRAZIL P1020 UPDATE. BRAZIL P1020 UPDATE. Six-month P1020 tariff free import quota extension was officially announced today (From January 10).

Brazil has renewed its P1020 tariff free import quota until June 2020 effectively exempting 150 kmton for the January-June 2020 period of six months. This is effectively an extension of the previous six months import quota allowance (142.5 kmton) that expired the last day of December. The official confirmation and approval have just taken place. Looking ahead, we expect spot P1020 premiums to remain under pressure.

More details in full report.