US Aluminum Futures Rise As Freight Costs Continue To Rise

Strong points

Freight continues to increase

Supply constraints remain

The decline is accentuated until 2022

CME Group’s AUP Midwest aluminum premium futures rose in the week ended May 10, as demotions tightened in 2022, with rising freight costs supporting prices further into 2021 .

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Futures contracts are traded on CME Globex and CME Clearport and are settled monthly against the S&P Global Platts Midwest transaction premium.

Supply continues to remain tight as it is difficult for factories to find labor and transportation, as well as a tight scrap market. The increased demand for P1020 and aluminum plates came from factories which were unable to obtain scrap metal for the month of May.

The US Midwestern Premium Platts hit an all-time high of 26.10 cents / lb on May 4 and has remained there ever since. By waiving the import duty of 12.263 cents / lb as of May 7, the US Midwest’s premium is still lower than 2015 levels when there were extended LME warehousing queues. Market sources said replacement costs are now pushing up to 30 cents / lb.

The May contract stabilized 0.60 cents / lb for the week at 26.10 cents / lb on May 10th.

The May / June spread tightened slightly to a downgrade of 1.15 cents / lb on May 10 as stocks continued to benefit from steady demand and traders continued to restock especially in Toledo, New York and Baltimore.

“There are [small] inventory in Detroit, but freight to a point of consumption remains high, ”said one trader.

With the demotion steepening again, market participants are still actively selling the first month contracts and buying other tapes dated in 2021 to capture some of the demotions and replenish inventory.

The June / July spread eased from 2.79 cents / lb to around 2.20 cents / lb, while the July / October spread narrowed to 1.825 cents / lb on May 10. the sale was observed in Q3 and Q4. The Q3 / Q4 spread also tightened, settling just below a downgrade of 2 cents / lb.

“We could see higher freight in the fourth quarter,” said a second operator.

Q4 supply was slightly higher on the week at 20.50 cents / lb as activity continues at lower levels into 2022. Fresh produce purchases entered the market during the 2022 to 17 calendar. , 75 cents / lb on May 6, followed by second half 2022 trade at 17.25 cents / lb on May 10. This tightening in the second half of 2021/2022 schedule to around 4 cents / lb back, as the market began to assess some relief in freight costs and some increase in import flows.

  • The total AUP volume was 1,098 lots or 27,450 mt for the week ended 7 May. Open interest ended the week at 22,445 lots, up 375 lots from the April expiration which lost 2,898 lots.
  • The six-month spot spread stabilized at a decline of 5.175 cents / lb on May 10
  • The cash spread / three months on the LME is established at a contango of $ 12.15 / mt
  • The cash / December spread settled at a contango of $ 21 / mt
  • The speculative net long position on the LME rose to 42% of the OI at the May 5 close, approaching the highs of 2017; Marex
  • US primary aluminum production for April was 72,896 tonnes, down 3.1% year-on-year; Aluminum association
  • Canadian primary aluminum production for April was 267,452 mt, down 3.3% on pace. Aluminum association

The six-month spot premium spread continued to decline from the previous week and averaged 5.375 cents / lb during this period.

The latest Commodity Futures Trading Commission trader engagement report showed that at the close of May 4, long swap positioning declined from 1217 lots during the week to 12194 lots, spread activity having decreased from 128 lots to 892 lots. Short positions per managed currency decreased from 173 lots to 998 lots.

“We are trying to import from other countries, but the freight is astronomical,” said one consumer.

Data from the March U.S. Census released on May 4 showed 124,392 tonnes of unalloyed primary aluminum was imported into the United States, down 26.42% year-over-year. Imports from Canada increased 11.7% month-on-month to 106,176 tonnes. The monthly increase could prevent additional tonnes from coming in from the Kitimat smelter in British Columbia, Canada and supply the southern United States, as market sources say the region traded as high as 1.75 premium cents / pound to Midwest due to limited supply.

The United States Trade Representative gave no further guidance on quota amounts for 2021, which maintains the Canadian supply of P1020 in the United States and increases additional charges on higher purity metals such as the P0610 and the P0506.

Even as Canada shifts a large portion of its primary aluminum production to value-added products, the market continues to fail as the US 6063 billet spot premium hit 22 cents / lb on April 15. and has stayed there ever since.

About William G.

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