Weak demand has been the main catalyst for lower P1020 premiums across Europe in 2023, with participants now mulling whether the market is likely to see a demand reversal before the end of the year.
“Summer has been quiet and a lot of Europe has been on holiday, which is typical. But post-summer conversations are not looking much better and some consumers are not expecting to see a real recovery until [the second quarter] of 2024,” one trader in the region said.
Fastmarkets assessed the aluminium P1020A premium, in-whs dp Rotterdam at $260-280 per tonne on September 1, falling from $265-285 per tonne one week earlier and marking its lowest level since January 10, 2023.
The premium hit a 2023 peak of $320-340 per tonne in April before retreating by 18% to reach its current level.
“It is still difficult to secure contracts or get consumers to buy. The destocking phase is still on course and the contango is not as strong as it previously was, so we see a lot of sellers in the market,” a second trader said.
“I don’t see demand coming back really any time soon,” they added.
Aluminium spreads on the LME remain somewhat supportive in wide contango, with the cash/three-month spread most recently at $49.35 per tonne contango.
But participants have noted that amid rising interest rates and global inflation, the cost of holding units has become significantly more expensive, which has increased appetite to sell amid the short-term bearish outlook.
Demand from end-user sectors has remained weak through the Northern Hemisphere’s spring and summer, which traditionally is a period of strong demand from construction, for example. This has weighed negatively on value-added product (VAP) premiums as a result.
Fastmarkets assessed the aluminium 6063 extrusion billet premium, ddp North Germany (Ruhr region) at $465-500 per tonne on September 1, unchanged from the previous week’s assessment, but dropping 29% from $650-700 per tonne in January.
This is the lowest level since February 2021.
“We might start buying our [fourth quarter] tonnes in October, but we’ll likely be doing so on a monthly basis rather than quarterly, as there is still a lot of uncertainty over our requirements,” one billet consumer told Fastmarkets.
“We heard some very low offers in the market, but I guess people are desperate to get rid of [fourth quarter] volumes,” they added.
Aluminium packaging demand also started to weaken during the first quarter of 2023, a trend that has continued into the second quarter.
But for many the lower packaging demand has been offset by the recovery of the automotive sector, with monthly production statistics in Europe continuing to recover.
Existing stockpiles at producers continues to weigh on the primary foundry alloy market, however, with spot requirements reportedly remaining limited. Questions also remain over the demand picture once the current backlog of automotive orders has been closed.
Fastmarkets assessed the aluminium primary foundry alloy silicon 7 ingot premium, ddp Germany at $600-650 per tonne on August 25, down from $650-750 per tonne at the start of the year, a 10% decrease.
The low-carbon aluminium differential for P1020 hit its highest level since being launched in July 2023 while demand for green units remains strong despite weaker underlying premiums.
But participants continue to question whether the existing low-carbon P1020 supply will be able to meet the growing demand for the green material.
“Demand is muted overall but I still see an increase in the amount of my consumers who are coming to me at least asking to discuss low-carbon aluminium,” a third trader said.
Fastmarkets assessed the aluminium low-carbon differential P1020A, Europe at $25-40 per tonne on September 1, unchanged from the previous month’s assessment, but rising from $10-30 per tonne at the beginning of the year and marking the highest level since it was first launched.
Low-carbon contracts for 2024 have been heard with a “green” upcharge of up to $45 per tonne, with participants reportedly looking to secure quantities for the coming year.
The growing focus on ESG in the metals industry is likely to intensify further with the imposition of the European Carbon Border Adjustment Mechanism (CBAM) transitional phase at the beginning of October.
Participants remain uncertain on how the new legislation will impact the flow of metal into the European market.
“It is still not clear exactly how CBAM will impact [the European aluminium market], but people are trying to get themselves as ready as they can ahead of 2026,” one producer said.
CBAM rules will be applied from October 1, 2023, but with a transition period wherein EU authorities will test CBAM without imposing any duties. Full implementation will then start in January 2026.
P1020 premiums in the US and Europe were well supported at the beginning of the year, surging upward due to heightened supply concerns, before retreating lower on weak demand.
But with aluminium inventories remaining at historic lows, participants have noted further threats to supply while demand returns.
“Sure, there’s more material around now than there was at the beginning of summer, but LME [stocks are] still at historic lows, and you can’t forget about all the lost capacity in Europe,” a fourth trader said.
Fastmarkets’ analysts estimate that close to 1 million tonnes of primary aluminium capacity was curtailed in Europe amid surging energy prices and subdued buying interest.
Participants in recent weeks have also been watchful of liquefied natural gas prices in Europe after the biggest single day jump since the start of the war in Ukraine over fears of workers striking at gas sites in Australia.
Alumina refineries in Western Australian could be impacted by supply issues if ongoing talks at some Chevron sites in the region fail.
The combination of volatile gas prices, lower commodity premiums and subdued demand could result in more capacity coming offline in Europe in the coming months.
Total aluminium inventory levels on the London Metal Exchange remain historically low, most recently at 506,400 tonnes, of which 225,350 tonnes are available on-warrant.
Stock levels are up from 447,250 tonnes at the beginning of the year but remain 109% lower than the 934,375 tonnes recorded in January 2022, and 1,340,525 tonnes in January 2021.
Some participants have also pointed to the lack of brand diversity on the LME over recent months, with the most recent data showing that over 80% of all aluminium on the exchange are of Russian origin.
Weaker-than-expected markets in China and Japan have also weighed negatively on premiums in both Europe and the US, with the anticipated recovery failing to materialize despite the removal of Covid-19 restrictions.
Market analysts continue to point to China as a key factor for global commodity performance, with further economic stimulus policies in the region needed to sustain any meaningful gains among base metals.
“China is sending a strong message that it still has the ability and tools to boost growth over the coming quarters. This should lend support for LME base metals prices, as producers and consumers’ confidence start to improve, boosting order levels and promoting additional consumptions,” Fastmarkets’ analyst Andy Farida said.
Beyond China, and in the physical market, eyes remain on what has been a relatively slow year for the Japanese premium.
Negotiations for the MJP quarterly settlement have been drawn out throughout 2023, amid low requirements from consumers in the region.
Fastmarkets’ aluminium P1020A (MJP) quarterly premium, cif Japan was assessed at $118.00-127.50 per tonne for July-September, following deals reported at both $118.00 and $127.50 per tonne, down from $125-130 per tonne in the previous quarter.
The quarterly settlement for the second quarter spiked following supply concerns and a more positive sentiment in Europe and the US, but has since retreated due to tepid demand and substantial stocks levels on the ground.
But participants have been watching fourth quarter negotiations closely, with initial offers heard at $120 per tonne.