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Aluminum Premiums Outlook Update (January 6, 2020)

Executive Summary

1. (From December 30). US BILLET UPDATE. US spot billet premiums expected to remain under pressure in 2020.

US offshore billet imports ended the year up at least 8% y/y and added more than 955 kmton—the highest annual import volume ever, with units from even unusual origins (like China and Brazil) flowing to the US market. The US 2020 billet spot market is expected to remain very competitive (bearish for premiums), as several domestic primary and secondary billet producers remain long and hungry to capture spot market volume. Moreover, we can confirm various offshore billet producers will compete more aggressively in the US spot market since they have increased their unsold billet inventories in the region.

More details in full report.

2. (From January 3). US PFA ALERT. US PFA premiums decline further as oversupply lingers.

Regional oversupply continues to pressure premiums down considering: a) domestic suppliers (in a long position and exempted from section 232) have decreased spot premium upcharges to capture volume, b) several offshore suppliers that have accumulated unsold units in the US are also aggressively marketing those units, and c) regional automotive demand remains subdued, decreasing PFA consumers’ needs. Spot premium decline seems to be currently exacerbated in the PFA small ingot side due to larger number of long suppliers (producers and traders alike) marketing this shape compared to PFA tee.

More details in full report.

3. (From January 3). EUROPEAN BILLET UPDATE. Spot premiums unchanged amid no activity due to holidays. Various extruders see premiums decline trend as practically over.

Several extruders seem convinced billet premiums have bottomed out at the current multi-year-low levels. However, they don't anticipate a significant premium rebound in the short term either, expecting instead any potential spot premium increase to add up to no more than $10–$20 per mton in the coming weeks considering lingering oversupply, demand uncertainty, and January's fewer working days. From our side, we see spot premiums increasing in Q1 2020 as a real possibility amid higher LME prices, stronger Rotterdam duty-unpaid premiums, and at least a slight pick-up in demand.

More details in full report.

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