US authorities may get oversight, investigative powers on aluminium pricing [UPDATE]

US regulators may get powers to conduct oversight and investigate price-reporting and price-setting entities in the aluminium markets if recently introduced legislation becomes law.

US representatives Ken Buck (Republican-Colorado) and Jim Costa (Democrat-California) have introduced bipartisan legislation that would grant the US financial authority the Commodities Futures Trading Commission (CFTC) the ability to ensure a fair and free market for the pricing of aluminium in the United States, according to Buck.

It would also allow the US Department of Justice to consult with the CFTC to be sure that all regulatory and oversight actions align with anti-trust statutes.

“Our beverage and beer industry, along with so many other job-creating industries, rely on a fair and free market for aluminium purchases,” Buck said. “To avoid perversions of the free market, like monopoly pricing, we need to fully equip the CFTC, alongside the Justice Department, to investigate pricing irregularities that have been plaguing the aluminium market for months now.”

According to Buck, end users in Colorado have noted that producers are selling 100% of their aluminium on a duty-paid basis even though only around 30% of the aluminium they are selling was subject to a duty when they purchased it from the original supplier.

Much of the other 70% comes from recycled aluminium that does not have a duty assessed, Buck said.

Beer industry
The move to introduce legislation follows a bipartisan letter led by Buck and signed by 31 of his colleagues in June requesting that US Attorney General Jeff Sessions examine possible anti-trust violations occurring in the US aluminium market.

The letter stated that consumers of aluminium are increasingly concerned that S&P Global Platts, the price reporting agency that sets the US Midwest premium, had deviated from its standard practice of using spot transactions to set the price and was instead working with a few producers, merchants, traders and banks to set a potentially artificial price.

Consumers who purchase aluminium for use in the soft drink and beer sectors are particularly at risk, the letter noted.

The beer industry, which has been vocal about the allegedly unfair nature of the duty-paid aluminium premium, welcomed the introduction of legislation for the Aluminum Pricing Examination (APEX) Act.

“We need to ensure the CFTC and US Department of Justice examine aluminium pricing irregularities so unfair market practices do not disproportionately harm end users such as the beer industry,” Jim McGreevy, president and chief executive of the Beer Institute, said.

According to McGreevy, the Midwest premium, created by metal producers several years ago, was intended to cover the logistical costs of moving metal into North America and was therefore essentially a shipping and handling fee.

“But over time, the Midwest premium has become a device to speculate and artificially inflate the price paid for aluminum at the expense of end-user businesses and consumers. Since January it has increased by as much as 135% – far more than the 10% tariff would warrant,” he said, referring to the Section 232 tariffs ordered in June by the US on aluminium and steel imports from Canada, Mexico and the European Union. A round of retaliatory tariffs followed.

“Industries thrive when there is predictability and accountability in the metals market. In order to compete, American brewers need a fair and transparent pricing system for aluminium,” McGreevy added.

But Platts – like Fastmarkets, an independent price reporting agency that has no vested interest in whether the price of a commodity it covers moves up or down – counters that its assessment of the premium was derived transparent and is representative of market reality.

“Driving recent increases in the S&P Global Platts US Aluminum Midwest Transaction Premium have been US import tariffs and US sanctions affecting Rusal, the world’s second largest aluminum producer and a big exporter into the US,” a Platts spokesperson told Fastmarkets.

“The impact of these actions has significantly reduced available and unrestricted supply in the US. The Midwest Premium is simply reflecting this unique market dynamic,” the spokesperson added.

Last year, the beer industry purchased 36 billion aluminum cans and aluminum bottles, which contain about $2.7 billion worth of aluminum. The Beer Institute estimates that the beer industry could lose 20,000 jobs due to the aluminium tariffs and increased cost of aluminium and has called for the end to Section 232 tariffs.

Fastmarkets AMM
Last month, Fastmarkets AMM said it would rename its P1020 Midwest aluminium premium the “aluminium P1020 duty-paid premium delivered Midwest cents/lb” or “aluminium P1020 Midwest duty-paid premium.”

But it decided against launching a US duty-unpaid aluminium premium after market feedback suggested a different approach was required. This was due to a lack of liquidity given the infrequency of duty-unpaid transactions, with the concept failing to meet Fastmarkets AMM’s standards of quality.

After further feedback, Fastmarkets AMM launched a weekly price assessment for the US cost insurance and freight (cif) premium for aluminium sent to the port of Baltimore.

Fastmarkets AMM’s latest assessment of the P1020 premium was 20.25-20.75 cents per lb on Monday October 1, down from the more-than-three-year high of 22-23 cents per lb on April 10 but more than double the 9.4-9.5-cents-per-lb range recorded at the start of this year.

The fall in the premium over the past two weeks reflects both an extension by US Department of Treasury’s Office of Foreign Assets Control (OFAC) of expiration date of its general licenses regarding Russian producer Rusal to November 12 from October 23 and a backwardation in the forward curve on the London Metal Exchange, market participants told FastMarkets.


(This article was updated on Friday October 5 with comment from Platts; Fastmarkets’ assessment of reasons for recent fall in its assessment of its P1020 premium)