European aluminium market tightness worsens as logistics issues plague ports

The European aluminium market has experienced extreme tightness so far in 2022, due to high energy costs pushing European smelters offline just when there has been strong demand and with the situation being exacerbated by Russia's invasion of Ukraine

With premiums at all time highs across the continent, market participants have been looking to ship metal from other regions into Europe, but logistics problems are making it “impossible” to ease the nearby tightness, they said.

“The main factor looks like the infrastructure bottlenecks, particularly around [Rotterdam],” one trader in the region said.

“Several warehouses are reporting severe staff shortages, from stevedores to commercial agents and operators. There simply aren’t enough ground crews and discharging times/dock availability is very tight,” they added.

Fastmarkets assessed the aluminium P1020A premium, in-whs dp Rotterdam at $600-620 per tonne on Tuesday, April 26, up by 43.5% from $410-440 per tonne at the beginning of the year.

“Nearby – and we’re talking within the next month – people are very short,” a second trader said.

“There’s transport delays, logistics issues and word of further curtailments. Demand is not amazing, but supply has been struggling enough to keep stocks low for a long time now. We’re in a supply-led market and while it remains this tight, premiums have got to be high,” they added.

A number of market participants told Fastmarkets they were without units for May and had delayed shipments. which was compounding an already tight spot market.

“People want to do swaps, but there aren’t any options. Everyone is asking to swap something for July and August with a unit for now, but no-one has any units now. It’s a bad situation. When the LME aluminium price dropped earlier this week, consumers came out to buy but couldn’t find the tonnages they needed,” one producer in the region told Fastmarkets.

The London Metal Exchange three-month aluminium price has been under pressure over recent days and was most recently trading at $3,077.50 per tonne on Friday morning after reaching a high of $4,073.50 per tonne on March 7.

“It’s almost impossible. Even on paper, if you see there is a unit in Asia and the [mathematics works] and it all adds up, it’s impossible to get it here quickly,” a third trader said. “OK, I can have that material in the summer months, but how does that help me now?”

Premiums were also up in the unpaid market, where Fastmarkets assessed the aluminium P1020A premium, in-whs dup Rotterdam at $490-500 per tonne on Thursday, April 28, rising from $480-500 per tonne the previous day and up by 151% from 12 months earlier.

While some market participants see this as a short-term issue, others anticipate that the logistical issues and fundamental tightness could persist for some time.

“The European aluminium story is one of supply and right now the biggest focus is the acute logistics issues,” a fourth trader said.

“There are compounding logistical issues in Rotterdam on top of already tight supplies. There isn’t anywhere to berth in Rotterdam and there isn’t enough labor to offload. The redistribution of trade flows, with more units coming from Asia than from Russia is making it a lot harder to handle. You can’t just change processes in a couple of months, it takes a couple of years,” the trader added.

Global LME aluminium warehouse stocks continue to be drawn down and total inventory levels were recently at 570,100 tonnes, with 369,100 tonnes having been removed from warehouses since the beginning of 2022.

Fastmarkets’ research analysts recently anticipated a 911,000 tonne global deficit of aluminium for the second quarter of 2022, growing to a 1,014,000-tonne deficit by the second quarter of 2023.

Sources told Fastmarkets that extra units could be offered into Europe in the coming months, but these will arrive at the earliest in July.

“We’ve heard that there could be a significant offload of [Russian-origin] material into the West,” a fifth trader said. “Suddenly people are becoming very wary of their positions,” they added.

A consumer said: “I’ve worked in this market for a very long time and I’ve never seen the [Chicago Mercantile Exchange] so backwardated. We’re buying at a premium of $420 [per tonne] for [the third quarter] but right now offers are at $500 [per tonne].”

Duty unpaid forwards on the CME indicate premiums in July of $437.50 per tonne.

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