European aluminium sector sees only minimal boost from improving automotive demand

High stock levels are keeping consumer requirements low despite a recovery in automotive demand, Fastmarkets has observed

Although European car sales remain below pre-pandemic levels, automotive producers are reporting improving production levels as the semiconductor-chip shortage eases.

Statistics from the European Automotive Manufacturers Association (ACEA) show that despite production improving from August to December 2022, output totaled 9.3 million units, which is in line with 2020, when the industry was affected by Covid-19 lockdowns.

Overall output in the European Union last year was still 24% lower than the 2019 pre-pandemic levels, ACEA figures show.

The ACEA expects new car registrations in the European Union to rise by around 5% in 2023, returning to 2020 levels. But, even if that level is achieved, total car registrations would still be lower than the 13 million units of 2019.

“Automotive demand is returning, but we’re focusing on the higher value units where we can make a better profit,” an automotive consumer said.

European aluminium producer AMAG noted in its recent full-year financial results that its broad product portfolio further expanded and shipments to the aircraft, automotive and packaging industries significantly increased.

It reported in its rolling division, shipments of aluminium foil stock for packaging increased by 6,000 tonnes (18%), with aircraft sector shipments increasing by 7,000 tonnes (10%) and automotive original equipment manufacturer (OEM) shipments up by 4,000 tonnes (19%).

The rolling division also reported a stable new order intake from the aircraft, automotive and packaging industries in the fourth quarter of 2022, with evidence of slow new order intake activity primarily in the industrial applications area.

AMAG also noted “significant shipments growth” in its castings division, which were up by 3,100 tonnes “in a volatile environment in automotive industry.”

“Automotive [demand] is strong for the nearby and for [the second quarter] but I would be cautious to go too far beyond this,” a European producer source said. “We already see one plant in Europe closed for the next two months due to renewed supply chain difficulties.”

Automotive producer JLR announced it had returned to profit in its third-quarter results, linked to the easing chip shortage.

It reported wholesale volumes of 80,000 units, the highest level since the first quarter of 2022, when the semiconductor shortage began, and up 15% year on year.

Despite the improving automotive production levels, the aluminium primary foundry alloy (PFA) market has not yet been boosted by the returning demand, with metal requirements still reduced amid remaining stocks.

“Without doubt, we see automotive [as the strongest demand sector],” Norsk Hydro chief financial officer Pal Kildemo told Fastmarkets.

“We see that [electric vehicle] demand is very strong, particularly for lower carbon aluminium. If you look at our extrusion operations, we have seen a big decrease in sales demand, but we have an increase in margin which nearly offsets that. And that is because we are selling into more advanced segments where demand is stronger,” Kildemo added.

Fastmarkets’ monthly assessment of the aluminium low-carbon differential P1020A, Europe was $10-30 per tonne on February 3, unchanged from January 6, but rising from $0-10 per tonne in February 2022.

Participants in the secondary aluminium market also noted an increase in demand from the automotive sector, with price increases capped by several competitive offers in the market following a “difficult” fourth quarter.

“Demand is picking up in Europe, and one of our customers has come back looking for extra tonnes, but this hasn’t yet been reflected in the price,” a secondary aluminium producer source said.

Fastmarkets’ weekly assessment of the aluminium pressure diecasting ingot DIN226/A380, delivered Europe was €2,280-2,350 per tonne on February 17, narrowing downward by €30 per tonne from €2,280-2,380 per tonne on February 10 but remaining well-supported by increased consumer demand.

“We saw a good recovery in December and January, in line with expectations, with the higher LME (London Metal Exchange) prices, the year started better than expected and the uncertainties are not there anymore on gas and energy,” a trader said.

“The building sector[a key consumer of extrusions] still have high stock levels in Europe downstream, and is suffering from seasonally low demand. This will improve from the end of March, but they are buying what they need at the last moment.”

“There is demand out there. The rolling sector is recovering [while] the automotive sector is imbalanced; the bottleneck is improving because of a downturn in the economy, and people don’t want to spend the money [on cars],” the trader added.

Fastmarkets’ daily assessment of the aluminium P1020A premium, in-whs dup Rotterdam was $205-220 per tonne on Thursday February 23, having risen from $200-210 per tonne at the beginning of the year.

P1020 premiums have been well-supported since the beginning of the year by LME spreads in wide contango, with the cash/three-month forward spread most recently at $42.50 per tonne contango.

But some participants have noted that further increases may be capped until demand returns with strength.

“A large component of the premium strength is being found from the spreads right now, which are providing continued support. But I’m not sure what substance there is beneath that, if we look at the billet market it still looks weak which makes me question overall physical demand,” a second trader said.

Fastmarkets’ weekly assessment of the aluminium 6063 extrusion billet premium, ddp Italy (Brescia region) was $540-605 per tonne on Friday February 17, down by $5-10 per tonne from a week earlier and down by 62% from its record high of $1,500-1,570 per tonne in February 2022.

The premium is now at its lowest level since March 2021.

Gains made in the improving automotive sector, have been dampened by a weaker packaging sector.

“Packaging is recession-proof, but it’s not inflation-proof and it’s taken a recent dip. But many consumers tell us that destocking is likely to finish at the end of February, beginning of March,” a third trader said.

Aluminium producer Constellium reported lower shipments in its fourth quarter 2022 results at 368,000 tonnes, down by 5% year on year due to lower shipments in the Packaging & Automotive Rolled Products segment.

“In packaging, we are experiencing weakness as we begin the year, but expect demand to return to trend growth rates as excess inventory is depleted,” Jean-Marc Germain, Constellium’s chief executive officer said.

While on a full-year basis, Constellium’s shipments increased by 1% year on year to 1.6 million tonnes on higher shipments in the Aerospace & Transportation and Automotive Structures & Industry segments, partially offset by lower shipments in the Packaging & Automotive Rolled Products segment.

“Looking ahead to 2023, we expect aerospace demand to remain strong as the path of recovery continues. We expect automotive demand to improve, but to remain below pre-Covid levels,” Germain said.

Elsewhere, global aluminium producer Novelis reported lower shipments amid reduced beverage can demand in its recent results against recovering automotive demand linked to better semiconductor availability in its recent third-quarter results.

Novelis registered shipments of flat rolled products at 908,000 tonnes in the December quarter, down 2% year on year from 930,000 tonnes. It linked this to inventory reduction by can customers, which was partially offset by higher shipments of automotive and aerospace products.

“The decrease in shipments is mainly due to lower beverage can shipments as customers reduce their inventory and adjust to more normalized levels of can demand post-pandemic, and softer demand for specialties products in this weaker macroeconomic environment. Conversely, easing supply chain constraints, including higher semiconductor availability, resulted in higher automotive shipments compared to the prior year,” Novelis said.

“As expected, our results were pressured by continued unprecedented inflationary headwinds, but were also further impacted by lower shipments resulting from significantly larger than anticipated customer inventory reduction actions in the beverage packaging market,” Novelis’ president, Steve Fisher, said.

Beverage can producer Ball Corp reported full-year and fourth-quarter global beverage can shipments were up 2.1% and down 0.9% year on year respectively when excluding Russia in its recent filings.

On a longer-term basis, Ball adds that packaging mix shift to aluminium cans supported by ongoing packaging legislation in certain countries continues to be a driver of aluminium beverage packaging growth.

Meanwhile, the aerospace sector remains robust for many aluminium companies, with some participants linking this strong demand to the ongoing shortage of higher purity metal and the rising upcharge for these grades.

AMAG, Constellium and Novelis all noted a strong aerospace sector in their recent results, while Ball reports its year-over-year aerospace backlog increased had increased by 20% to $3.0 billion in 2022, from a year earlier.

Aluminium producers also continue to face headwinds in 2023, with AMAG expecting profitability for the year would “likely be influenced by the economy, geopolitical developments, and by demand and price trends which could see significant volatility, while energy prices and supply will remain key issues.”

Despite energy prices trending back to levels seen prior to Russia’s invasion of Ukraine in February 2022, some producers needed demand to increase further before bringing curtailed capacity back online.

At the same time, the switch in consumer buying preference to shorter, smaller purchases amid the weakening economic environment has also resulted in uncertainty for traders.

“We have targets that we are having to meet day by day in terms of vehicle production and that’s the focus for now, and we are being a lot shorter term in our commitments,” the automotive consumer said.

“Nothing is stable, and everything is on the table from lower to higher numbers. One customer of mine wants to cancel their orders, but others are reporting improved demand,” a third producer source said.

Paolo Pizzoli, senior economist at ING, continues to see uncertainty for the economy in Italy amid high stocks, despite improving data.

“Positive signals from confidence data in January warrant some optimism, but do not clear the way for a substantial short-term acceleration, given the uncertain external environment,” he said.

“Business confidence data published after the turn of the year was positive but did not dispel uncertainty. While the PMI (purchasing managers’ index) entered expansion territory, orders remained soft and the stock of finished goods is relatively high, suggesting that a substantial acceleration in production is unlikely, at least in the short run. To be sure, the consolidation of wholesale gas prices at current levels could help to support businesses, particularly in energy-intensive sectors,” he added.

What to read next
The Kingdom of Saudi Arabia’s (KSA) ambitious plan to diversify away from oil and into metals will increase local nickel consumption and fund international mining projects, given recent massive investments in nickel-intense industries
Fastmarkets proposes to amend the name of the MB-AL-0231 Aluminium P1020A all-in price, delivered Midwest US, US cents/lb to clarify that the price is based on the London Metal Exchange cash aluminium price.
Read more from senior analyst Andy Farida on how the price action in LME nickel has played out in the first half of 2024
Tight aluminium scrap availability, the increase in container costs, sluggish demand in the US and the US market’s current indifference to rising premiums in Europe and Asia were the top subjects discussed during the Harbor Aluminum Summit that took place in Chicago on June 4-6
The publication of Fastmarkets’ aluminium scrap and secondary aluminium ingot price assessments for Wednesday June 12 were delayed because of a reporter error. Fastmarkets’ pricing database has been updated.
Germany-based copper recycling and non-ferrous metal provider Aurubis has started commissioning their secondary smelter in Augusta, Georgia, and could eventually introduce black mass recycling to the facility