Metal Bulletin aluminium arbitrage indicator

The differential between canceling aluminium without the 10% 232 tariff from London Metal Exchange-listed warehouses in Asia and shipping the material into the US Midwest increased for the fourth month in a row.

The estimated arbitrage for material from Singapore, Busan, Johor and Port Klang shipped to the US Midwest increased to fresh highs since Metal Bulletin launched the calculator in June last year.

For duty-free metal originating from warehouses in Singapore, the estimated arbitrage was at $331.45 per tonne in May for shipments of 10,000 tonnes (via break bulk shipments), a large increase from $317.75 per tonne in the previous month. 

In Busan, the estimated arbitrage for duty-free metal rose to $344.61 per tonne for shipments of 10,000 tonnes from $329.65 previously. 

In Johor and Port Klang, the estimated arbitrage on duty-free metal jumped to $346.44 per tonne for shipments of 10,000 tonnes from $332.98 per tonne a month ago.

A strong premium in the US Midwest through May kept the window wide. The monthly average for the US Midwest premium rose to $485.02 per tonne in May from $473.99 per tonne in April.

The premium continues to find support from consumers still apprehensive of using Rusal metal and expectations of tightness in the market via the newly implemented 232 duties on Canada, Mexico and the European Union.

Metal Bulletin and American Metal Market assessed the US Midwest spot premium at $485.02-496.04 per tonne Tuesday June 5, an increase from $474-496.04 per tonne from June 1.

Arbitrage narrows with duty
The arbitrage with the 10% 232 tariff duty factored in - only aluminium of Australian origin qualifies for exemptions to the import duty - is still open but has narrowed considerably. 

With duties included, the estimated arbitrage for metal from warehouses in Singapore was significantly lower that duty-free at $96.24 per tonne in May for shipments of 10,000 tonnes (via break bulk shipments). 

In Busan, the estimated arbitrage was $110.60 per tonne for shipments of 10,000 tonnes. In Johor and Port Klang, the estimated arbitrage was $111.93 per tonne.

Still, at current levels and given the 10% duty the US Midwest premium can still attract metal from elsewhere.

"If MJP settles for real at $160 and Rusal units are out of picture for the US until further notice, 22.5 cents [per lb] is what you need to get units into the US," a trader said

“I see 22.5 cents plus achievable [for an arbitrage] - I think the arb is due to open in the second half,” a second trader said.

Fuel price volatility
Freight and FOT rates softened in May but did not have a significant effect on arbitrage opportunities. Recent dollar strength against Asian currencies has helped eased FOT costs as well.

But an uptick in fuel prices is making market participants hesitant about whether to take advantage of a potential arbitrage.

“Underlying ocean freight quotes have softened but the increase in bunker charges that reflect higher crude prices means that overall rates for 10,000 parcels have gone up by about $2 per tonne,” one source said.

“Shipping-wise, they’re trying to cover upcharges on fuel. It’s very volatile. Some routes are increasing [in price],” the second trader said.

The freight and FOT component - the total value of canceling material from the warehouse and shipping it to Owensboro in the US Midwest - of trades decreased to $153.57 per tonne from $156.24 per tonne in Singapore in March. It fell to to $140.41 per tonne from $144.35 per tonne in Busan and to $138.58 per tonne from $141.01 per tonne in Johor and Port Klang.