Tight supply, robust demand for high-purity aluminium keeps differential high

P1020 premiums in Rotterdam rose through December last year and into early January on improvements in sentiment in the US and concerns about low inventory levels, but market participants have noted particular concerns about the availability of higher purity material.

Fastmarkets assessed the aluminium P1020A premium, in-whs dp Rotterdam, at $280-300 per tonne on January 27, unchanged since January 17.

Market participants noted that several producers of high-purity aluminium had production problems late in 2022 which resulted in few or no deliveries of grades such as P0610, resulting in a shortage of material across the market.

“P0610 availability will certainly be an issue,” one trader in the region said. “If you’re short [of such material], it’s not going to be easy to replace.”

Market participants believed the differential between P1020 and P0610 to be close to $10 per tonne for the majority of 2022, but this has recently increased to $15-20 per tonne for most of them, because of the limited availability of units in Europe.

“[One producer] is not offering any more low-iron metal, and A8 [grade] is difficult to get from them,” one market source said. “There is an incoming shortage of P0610 into Europe. It might be a $10 per tonne [price] differential now, but that could quickly move toward $20 per tonne.”

The same source said that a $10 per tonne differential for the metal, plus $20 per tonne in logistics, would mean a $30 per tonne upcharge. “[The grade] is an important [factor] for the automotive [industry] so there is a bit of an issue there,” he added.

“There is a tightness of [availability] of [high purity] units, with not as many going to Italy as in the past,” a second trader said. “The tightness of these units is pushing some prices upward. The differential depends on who you ask — I see $10-15 per tonne. The market is hyping it up a little, but I had a head-start on that and locked in stocks.”

“I have some P0610 material, but I will hold back from delivering for now because I know it’s going to be a more valuable unit soon,” a third trader said.

“Everyone is holding on to their units because they know they’ll be worth more in the coming months,” a fourth trader said.

Demand for high grades was likely to remain robust from the aerospace and automotive sectors, while wire rod producers reported to be completely sold out of material and with full order books.

“We are fully booked for wire rod. There is no spare capacity, availability of [P0610 and A8] is very low, and there is very high demand, with the majority going to wire rod. We are completely sold out,” one producer said.

“They are producing billet and wire rod with P0610, while it’s easier to make ‘green’ P1020. You can buy cheaper alumina than you need for high-purity grades,” the second trader said.

“Wire rod is the hottest product, and the forecast is good for 2023. Customers have booked requirements already,” a second producer said.

“P0610 ingots is a tricky [subject at the moment],” another market source said. “The aerospace and rod casting [sectors] need P0610, not P1020, [as do] billet-casting houses.”

But while ingots were in short supply, other shapes were being offered instead, such as sows and T-bars.

“There’s a real shortage of P0610 and specific shapes in general. Lower premiums in [the fourth quarter] meant reduced shipments into Europe, and traders destocked due to expensive financing costs,” a fifth trader said.

“The market has been surprised by the recent bounce in sentiment. It could take a few months to refresh ingot supply and, as a result, premiums could remain well supported in the near term,” he added.

“There are roughly 100,000 tonnes of material available in Port Klang [in Malaysia], but what’s left is mostly big shapes or poor-quality material. The number of good units available for prompt delivery is limited,” he said.

Total stocks in London Metal Exchange-registered warehouse in Port Klang were most recently at 222,725 tonnes, with only 40% (89,125 tonnes) available on-warrant, -the lowest on-warrant level since August 23 last year.

The shortage has been exacerbated by some aluminium producers switching their production to target the ‘green’ market, where low-carbon upcharges were currently higher.

“What’s adding to the tight supply is that some producers are looking to maximize green production. They can make a bigger upcharge on low-carbon units, and are [emphasizing] that over higher purity material,” a sixth trader said.

Fastmarkets assessed the aluminium low-carbon differential P1020A, Europe, at $10-30 per tonne on January 6, unchanged from the previous month’s assessment but rising from $0-10 per tonne one year earlier.

Market participants continue to note strong demand for green aluminium as part of the global spotlight on sustainability, with offer prices of low-carbon P1020 reported as high as $50 per tonne.

Meanwhile, the expected return of China to the global markets — after the loosening of the country’s strict Covid-19-related restrictions — had diverted some material away from the European markets, reducing supplies further, and giving more support to the higher differentials that were showing no sign of decreasing yet.