Key US aluminium premium in seemingly paradoxical decline

Aluminium premium offers reported to Fastmarkets in the United States rose in some instances and fell in others in a contradictory, initial reaction to news of a possible US ban on aluminium imports from Russia that broke last week

Ultimately, paradoxically, Fastmarkets’ subsequent assessment of the benchmark US premium for P1020 aluminium was lower.

The US Midwest premium declined on Friday October 14, although the aluminium metal price had risen – by 3.1% – on the London Metal Exchange on Wednesday when news of the possible sanctions by the US broke.

The latest decline is also sharply at odds with earlier this year when fears of sanctions drove the premium to its all-time high amid anticipated global supply shortages. Russia is the world’s second-largest aluminium supplier, accounting for 6% of global exports.

Fastmarkets assessed the aluminium P1020A premium, ddp Midwest US at 20.00-22.00 cents per lb on Friday, October 14, down from 21.50-22.50 cents per lb on Tuesday October 11.

Divergent deals and offers were reported during the week.

One trader was offered P1020 at 2 cents per lb more than his last purchase.

“The story on the [possible] ban was cited. They said, ‘aluminium’s getting tight,’” the source said.

Meanwhile, consumers reported getting producer offers at almost 1.5 cents below what they were offered in the previous week.

Still, the confusion continued into this week with one consumer saying late on Monday – ahead of the Tuesday October 18 assessment – that the premium seemed to be rising.

A second trader reported getting offers that diverged by 4 cents per lb.

“Some producers are trying to push the premium and, more importantly, the price back up,” he said.

Midwest premium almost half what it was in May

The Midwest premium is now at a 21-cent midpoint. That’s nearly half of the record 40-cent midpoint that prevailed through May 3, precipitated by fears of inadequate Russian aluminium supply.

“Everybody’s just trying to understand it all, changes from the White House, and the news that’s changing every day,” a third aluminium trader said on Monday.

Crucially, he added that he had not received any P1020 inquiries since last Wednesday’s report.

“Most consumers are covered,” he said. Multiple consumers corroborated his statement, saying they were not spurred into buying P1020 by the report.

By contrast, many said they “panicked” after Russia invaded Ukraine on February 24, in expecting US premiums to surge if the country blocked Russian aluminium imports.

Different climate

Before, perception alone seemed to be enough to move the US aluminium market, but sources today seem jaded in a bearish economic climate.

The US last imposed sanctions on Russia’s biggest aluminium producer Rusal International PJSC and its majority shareholder EN+ in 2018 – a move that then helped propel the US P1020 Midwest premium to its highest level in over three years.

On February 22 of this year, just before Russia’s invasion of Ukraine, US President Joe Biden, threatened sanctions on Russia “far beyond,” any seen before.

The premium that day went on to set a record high at the time of 36.5-37.5 cents per lb.

The US economy also seemed to be still humming along last winter.

“Now,” said a second aluminium buyer source, “we’ve had two negative quarters of economic growth – that’s traditionally known as a recession. And we look likely to have another negative quarter for the third quarter.”

“There’s metal around, nobody’s panicked,” he added.

“Just today, 15,000 tonnes came into Port Klang,” the buyer source said on Thursday, referring to the LME warehouse in Malaysia, which has the largest aluminium stock in the LME’s global network.

And, with shipping costs having substantially fallen from pandemic peaks, several sources said the cost of bringing aluminium from the LME in Asia is becoming affordable again.

This week’s decline follows ban bump

On Monday, there were still larger stock inflows to the LME – with most of the 69,000 tonnes going to Port Klang.

That rise in supply led to the aluminium metal price declining by more than it rose last Wednesday’s report on the possible ban on Russian material: giving up 3.3% versus its 3.1% gain.

A fourth trader took issue with what he said were unviable premiums, published by price reporting agencies, which he said fall below his replacement cost to bring aluminium to the US.

Nonetheless, he said even a total ban on Russian aluminium would not boost the US premium.

The highly influential Midwest premium factors into the pricing calculations for other aluminium premiums, including primary foundry alloy and extrusion billet, as well as a range of aluminium alloys. Aluminium scrap prices are often priced at a discount to the Midwest premium.

‘No difference‘

“A ban on Russian aluminium makes no difference, at this stage,” the fourth trader said. “It already costs about 30% more since normalized relations were dropped between the US and Russia. And no one is going to touch it for 2023 [contracts].”

The US stripped Russia of its “most favored nation” trading status in April.

Other sources agreed that the only measure that might increase the US premium would be a complete ban on Russian imports

A blanket ban on Russian aluminium reportedly is one of three options that the White House is considering, the other two being an increase in tariffs or direct sanctions on Rusal.

Rusal did not immediately respond to requests for comment on a ban on Russian aluminium imports or how it would affect US premiums.

Brian Hesse, former chief executive officer and president of Rusal America, who led a group that took it private and formed a new company PerreniAl in late April, responded: “No comment at this time.”

Bigger effects elsewhere

The US has imported 189,000 tonnes of aluminium from Russia so far this year – a higher annualized rate than the 242,000 tonnes imported from Russia in 2021, Morgan Stanley said in a research note last Wednesday.

If a ban, or punitive tariffs, were to be put in place, this could tighten up the US domestic market (although demand has also been weakening) and provide support to premiums,” the investment bank added.

A US ban “could also dissuade other buyers from taking Russian metal, with some companies (e.g. Novelis, Norsk Hydro) already laying out intentions to do so,” Morgan Stanley said.

The global effects on non-US buyers of Russian aluminium could be “more meaningful,” than the US effects, Morgan Stanley said.

Europe’s benchmark aluminium premium has been unmoved by the news in Fastmarkets’ daily assessments.

Fastmarkets assessed the aluminium P1020A premium, in-whs dup Rotterdam at $230-250 per tonne on Monday, unchanged since October 7.

European sources said the hypothetical ban adds to volatility, with some saying that it could support the falling premium if it was enacted.

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