European aluminium billet premiums fall following surge of overseas imports

European aluminium billet premiums have fallen from recent record highs following a surge of imports, resulting in an oversupplied market at a time when demand from the automotive sector has weakened, participants told Fastmarkets

Premiums in Europe hit a peak earlier in the year, when rising energy costs and volatility caused by the Russian invasion of Ukraine increased concern over billet availability.

Premiums in Germany have remained above other European locations due to the country’s preference for domestic material over imports. Germany is also more contract than spot focused.

Fastmarkets assessed the aluminium 6063 extrusion billet premium, ddp North Germany (Ruhr region) at $1,400-1,500 per tonne on June 10, down from $1,470-1,540 per tonne on June 1.

The premium in Germany averaged $1,528 per tonne in May 2022, compared with $935 per tonne in May 2021 and $250 per tonne in May 2020.

But a positive arbitrage window in Europe and lower premiums on offer across other continents has resulted in an increase in imports because European demand has begun to weaken, leading to a downtrend in billet premiums in recent weeks.

“Every aluminium producer in the world has been shipping to Europe this year and now we see the result, which is extreme oversupply,” a producer in the region told Fastmarkets.

Fastmarkets assessed the aluminium 6063 extrusion billet premium, ddp Italy (Brescia region) at $1,350-1,450 per tonne on Friday June 10, down from $1,400-1,500 per tonne one week earlier and falling from a record high of $1,500-1,570 per tonne in February.

In comparison, Fastmarkets assessed the aluminium 6063 extrusion billet premium, cif Thailand at $475-510 per tonne on February 11, before falling to $460-490 per tonne on June 1.

“People have been waiting as long as possible before confirming [third quarter] negotiations due to volatile market conditions,” the same producer said.

“But now demand has dropped off and they need to get rid of a lot of volume. Everyone is knocking on doors with offers and some offers [particularly for non-European origin brands] are extremely aggressive,” the producer added.

Multiple participants reported hearing aggressive low offers for overseas material into Italy and Spain in recent days.

Fastmarkets assessed the aluminium 6063 extrusion billet premium, ddp Spain at $1,400-1,450 per tonne on June 1, down from $1,400-1,500 per tonne in the previous assessment.

This compares with $950-990 per tonne one year previous and $230-250 per tonne two years previous.

Fastmarkets heard offers reported as low as $1,100 per tonne into these parts of Europe for non-European brands, which tend to trade below domestic material.

“We do see billet premiums collapsing right now,” a trader said. “There’s a genuine softening of demand and there’s a lot of cheap supply in the market.”

Demand for material in Europe has softened in recent weeks due to weaker automotive demand, participants told Fastmarkets, as well as sufficient stocks leftover from purchasing activity in previous quarters when supply was more uncertain.

“The auto sector has been running badly for a long time, but demand from car makers has really dried up. A new wave is coming, which will hit demand. We are very close to a full collapse on billet premiums” a second trader said.

The automotive sector has struggled throughout the pandemic amid supply chain disruptions across the globe, with production and sales levels not yet back to pre-pandemic levels.

Recent statistics by the European Automotive Manufacturers Association (ACEA) showed a 20.63% drop in EU sales of new passenger cars, to 684,506 units in April.

“The automotive market being weak is not news, it’s been two years, but now it seems the situation is deteriorating even further. A lot of companies in the automotive sector are very pessimistic, with lower orders and postponements,” the second trader said. “They will wait to buy [until] last quarter [because] premiums might weaken further.”

Domestic European producers, who had ramped up production amid the record high premiums, now have ample tonnages in stock and reluctant buyers to sell to.

“Many are trying to offload stock. It’s an overproduction issue - they were casting as fast as they can. Now the boom has slowed and supply has met demand. But billet is still profitable at $1,200 per tonne,” a third trader said.

“There is no doubt about it, there is only a downward trend,” a consumer said.

Billet premiums in Europe had been supported by ongoing logistical challenges on the continent, at ports and with mainland transportation, with many facing delays in receiving their material.

"[The price of P1020] plus conversion and other costs are keeping premiums high, but whether the market can absorb more imports, I don’t know,” the third trader added.

Fastmarkets assessed the aluminium P1020A premium, in-whs dp Rotterdam at $580-625 per tonne on June 10, widening from $590-625 per tonne on June 7. The premium has started to soften from $600-630 per tonne, which held from April 29 to May 24.

This compares with a monthly average of $234 per tonne during May 2021.

One market participant said that the weaker billet premiums were also negative for the P1020 market, with the poor automotive demand increasing pressure.

P1020 premiums have recently begun to soften in Europe and elsewhere.

“We’ve fixed everything for the third quarter and available for tonnage for spot is limited. Maybe there are offers much cheaper, but primary European billets have a value and I am not lowering my offers at the moment. Many are anticipating a price drop; it’s a vicious circle,” a second producer said.

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