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Billet premiums fall in the US and Europe; APEX Act gains further traction

Executive Summary

1. LME prices stuck around $1,740 per mton threshold as supportive manufacturing data is offset by inventory buildups.

LME 3M aluminum prices closed the session up 0.3% or $5 per mton at $1,739 per mton. Prices initially declined to levels as low as $1,735 per mton as LME inventories in Asia experienced their ninth-consecutive daily buildup. However, prices found support from preliminary manufacturing activity data indicating that contraction continued to moderate in November across the developed world. Easing contraction in world manufacturing activity is supportive for LME prices.

More details in full report.

2. NORTH AMERICA BILLET ALERT. Billet demand falls in October by the most in a decade; unprecedented billet oversupply pushes down spot and 2020 contract billet upcharges to as low as 5.5 cent/lb.

Domestic extrusion shipments declined 10% y/y in October, according to the Aluminum Association. All major markets—including B&C, distribution, machinery, exports, and consumer durables—are facing headwinds. We can confirm North American 2020 billet contracts for 6063 alloy billet logs, 7–9-inch diameter have now fallen as low as 5.5 cent/lb, as several suppliers are aggressively competing for market share to allocate unsold billet capacity. In fact, our market intel from the ground confirms a significant y/y increase of open/unsold billet capacity at several domestic and offshore producers' facilities.

More details in full report.

3. EUROPE PFA ALERT. PFA spot premiums plummet to fresh lows as demand continues to contract; Annual 2020 premiums expected to decline farther.

European PFA demand remains in contraction mode with our intel from the ground confirming that postponements of large aluminum wheel orders from Q4 into next year, which have in turn forced consumers to ask PFA suppliers to push out deliveries from this year into the next. Regional PFA consumers have become increasingly conservative, with many of them still showing reluctance to buy from the spot market even after lower premium levels and receiving a growing amount of unsolicited calls from several long providers looking to allocate units before premiums potentially decrease further.

More details in full report.

4. US MW APEX ACT UPDATE. APEX Act continues to progressively gain support on Capitol Hill.

Yesterday, Rep. Jefferson Van Drew (D-NJ) became the latest congressman to support the Aluminum Pricing Examination Act, joining forty-two others who have become cosponsors since the bill. Meanwhile, there is a companion bill in the Senate currently supported by four bipartisan cosponsors. To become law, proposed bills must be passed by both the House and Senate and then be signed by the president of the United States. Before a vote on the respective floors of the House and Senate, bills are referred to the appropriate committees for further study.

More details in full report.

5. LME Cash–3M backwardation expected to persist amid the emergence of a dominant warrant holder (bearish spot premiums).

The Cash–3M backwardation eased to $12.00 per mton from Thursday’s ten-month high of $13.50 per mton. Today, the Cash–December backwardation eased to $4.00 per mton from yesterday’s $6.00 per mton, and the December–January backwardation held without a change at $15.00 per mton. A dominant concentration of inventory holdings emerged for the first time in five weeks, further reinforcing nearby tightness.

More details in full report.

6. LME aluminum inventory buildups continue in Malaysia amid nearby backwardation.

LME inventories in Asia experienced sizeable buildups for a ninth-consecutive session, after warehouses in Malaysia experienced an inflow of 10,400 mton (of which 9,950 mton were delivered to Johor and 450 mton were delivered to Port Klang). As a result, total LME inventories increased to a new six-month high of 1,180,400 mton, while live inventories (i.e., excluding canceled warrants) increased to 1,000,875 mton, slightly below Monday’s nine-month high of 1,009,700 mton. More buildups could still be ahead as the December–January backwardation remains considerable.

More details in full report.

7. China’s aluminum prices hold near expected resistance amid thin trading.

SHFE December 2019 aluminum prices closed the overnight session virtually unchanged 13,950 yuan per mton ($1,754 per mton, excluding VAT). Prices faced technical resistance at the 200-day exponential moving average threshold but found support from resuming SHFE inventory withdrawals and gains across the base metals complex amid signs of stabilizing manufacturing activity in the Western World. SHFE aluminum prices remain capped by the 200-day moving average zone, which stands within 13,900–14,000 yuan per mton ($1,750–$1,760 per mton, excluding VAT).

More details in full report.