Six things we learned at the 2022 Fastmarkets International Aluminium conference in Barcelona

Key talking points at Fastmarkets’ International Aluminium conference, held in Barcelona, Spain, on September 12-15

Energy costs a key concern; demand picture remains unclear

Rising European energy costs remain a concern, participants said, with production cuts at a number of aluminium smelters and in the end-user markets creating a fragile supply and demand balance.

But European premiums have been little supported by the news, with many already pricing in the supply risk, and high energy costs also affecting consumer demand.

“For every Slovalco that comes offline, you have the same amount of demand leaving the market [as a result of high energy costs],” one European trader said.

Fastmarkets assessed the aluminium P1020A premium, in-whs dp Rotterdam at $400-440 per tonne on Tuesday September 20, unchanged from the assessment on Friday September 16 but falling from $420-460 per tonne one week earlier.

The premium has fallen by 32% from the recent record high of $600-630 per tonne in May, and the most recent assessment is a new 2022 low, after beginning the year at $410-440 per tonne.

But others remain less bearish, noting uncertainty over the extent to which demand has been affected, and maintaining higher offer levels based on historically low European supply.

“The outlook in the short term is negative, but the amount of tonnes at risk on the consumption side in Europe is difficult to assess,” a second trader said.

“Based on normal consumption rates I see the European market as still relatively imbalanced towards a deficit and see warehouse stocks in Europe at low levels, which leads me to a more bullish sentiment in the medium to long term,” they added.

Global LME warehouse stocks most recently sat at 346,025 tonnes, with only 4.2% - a total of 14,400 tonnes - located in European sheds, with the majority in Rotterdam.

Aluminium inventory levels have been a key concern over the course of the year after reaching a low of 271,450 tonnes in August. In recent years aluminium stocks have regularly been above 1 million tonnes, but there has not been over 1 million tonnes of the lightweight metal in stock since November 2021.

“The thing is, if you look at the outlook over the next few months, it is difficult to be too bearish. Demand is weak in the short term and spot liquidity is low, but traders are running leaner books than ever before. If and when demand comes back in a big way, it’s going to be a real struggle,” a third trader said.

“If a consumer comes into the market looking for significant tonnes I’m not sure where they would get them from,” they added.

Scrap in the spotlight but availability still a concern

Conference participants noted an uptick in interest and inquiries for aluminium scrap.

Using only a fraction of the energy needed to produce primary aluminium, and being recyclable by nature, many were looking for opportunities to advance scrap investments.

“Scrap is all anyone wants to talk about,” one primary aluminium trader said.

“There are some big opportunities to expand scrap use, and it could be a solution to issues of energy and sustainability,” they added.

But scrap prices have been extremely volatile over the past twelve months, hitting record highs earlier in the year following the Russian invasion of Ukraine, the subsequent spike of the LME cash price and concerns over disrupted supply chains.

Fastmarkets most recently assessed the price for aluminium scrap clean HE9 extrusions, delivered consumer UK at £1,800-1,850 ($2,053-2,110) per tonne on September 14. The price hit a record high of £2,400-2,500 per tonne in March, 29% higher than the beginning of the year.

But participants also remain concerned over availability for primary-grade scrap, with some noting tighter supply due to wider demand from across the industry, keeping scrap prices well supported.

Alumina steals the show

An unexpected focal point at the conference was the flurry of alumina trades that took place across the week, pushing alumina prices upward, in direct contrast to the European aluminium premiums which continued to trend downward.

Fastmarkets calculated its benchmark alumina index, fob Australia at $359.07 per tonne on Friday September 16, moving up by $22.04 per tonne from $337.03 per tonne at the start of that week.

“The market moved up a lot quite quickly and will now take a breather before a new direction is set,” one trader said.

Despite the various European aluminium smelter cuts across the continent, the upward price trend on the alumina market was supported by demand for the spot cargoes being offered.

Some participants noted concern over the high production costs for some alumina refineries in relation to energy costs and alumina pricing, with many around the globe, not just in Europe, effectively operating while “underwater.”

One of the transactions that took the market by surprise was a Brazil spot cargo, believed to be the first since early May. Participants reported hearing an fob Brazil cargo trading at $388 per tonne, putting the Atlantic differential at $30 per tonne.

Automotive sector production targets higher margin models

The automotive market was said to be focusing its available production on the higher margin luxury models while production capabilities remain constrained by continuing supply chain challenges, including the ongoing semi-conductor chip shortage.

Although automotive production remains below pre-Covid levels for some manufacturers, a choice to focus available production to target models with better returns made sense to participants who expected consumer spending to be affected by rising inflation and a potential recession.

Sentiment among participants was that the automotive sector was no longer in decline, with production now picking up from the low levels seen during the Covid pandemic.

Market keeps close eye on main Japanese ports

Bearish sentiment across both European and US markets has been accelerated by weak Asian demand, participants at the conference said.

The European market has been an attractive destination for imports over the past 12 months, with premiums reaching record highs in May.

But weak Japanese premiums and lower freight rates have led to an oversupply of imported material into key European ports over the past few weeks, moving premiums lower at a time of softer demand.

Fastmarkets assessed the aluminium P1020A (MJP) spot premium, cif Japan at $85-95 per tonne on Friday, down from $90-105 per tonne one month earlier and falling by 51% from $180-190 per tonne twelve months prior.

The Japanese market has been largely hit by weak automotive demand and continuing Covid-19-related restrictions. But participants have been keeping a close eye on consumption, with any pick-up in demand likely to provide support to premiums while units become more competitive.

“What happens with Asian demand is a key story for Europe,” a fourth trader said. “If consumption returns, then Japan will have to be ready to compete.”

Workforce shortages could intensify amid winter Covid surge, strikes hampering logistics again

Participants at the conference were cautious of the possibility of further workforce shortages, either from strikes amid the rising cost of living, or from a surge in Covid cases when the colder winter months arrive.

Vacancies at some European ports earlier this year were into the thousands and resulted in delays in offloading ships, alongside transport and trucking challenges, giving support to European aluminium prices.

While logistics-related delays eased during the summer, recent strikes by the workforce - not just at ports, but also at some aluminium smelters - has left some participants apprehensive of delays making a comeback.

Covid-related delays could see workers, as well as ships, being quarantined, with any surge in cases compounding the continuing worker shortages if restrictions are re-introduced.

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