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ALUMINUM PROFILE: US extrusion market sees uncertainty compounded; billet contract talks delayed
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Middle Eastern shipments in focus
This report is part of a monthly series that focuses on impactful trends in the US aluminum market based on S&P Global Commodity Insights' pricing, news and analytics data, as well as a review of other statistical data.
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North American aluminum consumers entered annual contract negotiating season with more uncertainty than seen since the height of the pandemic nearly three years ago. The extrusion sector, in particular, has been plagued by overhanging inventory, a double-digit demand drop, and spot billet prices plunging in half.
At fall conferences, where forward-year bookings usually take place, sellers reported that very few contracts were signed for 2024, compared with last year when a majority of 2023 business had been done.
The past month brought a few more potential supply-chain shocks -- the US launching trade cases against 15 countries' imports of extrusions, and the outbreak of war between Hamas and Israel in the Middle East -- a region which accounts for over half of all US aluminum billet imports.
News in view: Extrusions trade cases, conflict in the Middle East
The US International Trade Commission said Oct. 4 it had initiated antidumping and countervailing duty investigations over imports of aluminum extrusions from 15 countries.
The antidumping investigations target China, Colombia, the Dominican Republic, Ecuador, India, Indonesia, Italy, Malaysia, Mexico, South Korea, Taiwan, Thailand, Turkey, the UAE, and Vietnam, according to a notice dated Oct. 4. Countervailing duties are under review for China, Indonesia, Mexico, and Turkey.
One extruder with billet casting capability said whether duties are imposed on the imports, "could make a big difference in our market," suggesting without protection, some US extruders might not remain in business.
US and Canadian shipments of aluminum extruded products declined 12% year to date through August, according to the Aluminum Association, which also reported net new orders were off by 12.3% through September.
Extruders in the construction and RV sectors have felt the brunt of weaker demand, while those with automotive, aerospace, solar or hurricane shutter business fared better.
In billet supply news, the sudden outbreak of war between Israel and Hamas had some extruders worried about spillover effects on Middle East shipments if the conflict spreads.
A third extruder said he would further diversify his 2024 billet supply out of concern that the Strait of Hormuz could be blocked, while a fourth said he would avoid buying from Qatar or India, which also ship through the region. Billet importers typically keep US stocks, however, and many were unfazed.
US imports of billet were down 38% year to date through August, US Census Bureau data from S&P Market Intelligence Global Trade Atlas showed. Imports from the UAE, Bahrain, Qatar and Saudi Arabia accounted for 52% of the total 423,881 mt during the eight-month period.
On the plus side for supply, Century Aluminum finalized a new, three-year power contract with the South Carolina Public Service Authority for its Mt. Holly smelter, the company said Oct. 23.
Extruders and suppliers signed some 2024 billet contracts in late October, with a large portion still to be concluded.
"It's a lot of the same story; sales forecasts didn't come to fruition, and there are a lot of folks with overhanging inventory," another casting extruder said.
A primary producer said there was "no urgency" because extruders had no visibility on customer orders and "have metal to roll over from this year."
Some extruders said they have 30-60 days of billet to carry over to 2024. Most still expected to book annual contracts at fixed billet upcharges over Platts P1020 US Midwest Transaction price, although a few talked about negotiating quarterly or floating against spot pricing. They agreed they would probably lock up less volume than typical and leave more open to spot buying in 2024.
Producers said extruders have to commit to imports by November, however, given shipping lead times.
The Platts weekly US spot billet upcharge was down to 9-11 cents/lb over P1020 at end-October from 18-20 cents at the start of the year, for 6063, 7-8-inch billet, delivered Midwest within 30 days.
Extruders expect to see a comparable drop in contract pricing from this year's 18-24 cents. Offers in September in the low-to-mid-teens were mostly unsuccessful, with bookings so far ranging from 9.5-13 cents. Most talks centered around 11-12 cents as of late October, with lower deals for competitive areas such as the South or parts of the Midwest, and up to mid-teens for larger diameter, or 6061 alloy or longer freights.
The producer suggested secondary billet makers would struggle with margins at levels of 10 cents or below, while he and other primary producers said their companies could choose to shift more output to P1020 if billet margins drop too low. The first extruder expected spot billet upcharges to rise if the US sees duties on extrusion imports to bolster the US supply chain.
The Platts spot US aluminum transaction premium is at a 2.5-year low, as North American supply has outpaced demand. Deep discounts have been seen for spot deals and 2024 contracts, a function of full consumer inventories and economic uncertainty. The premium hovered at 18.95 cents/lb, plus LME cash, heading into November, down from 19.4 cents in early October.
As with billet, P1020 contracts are also delayed, exacerbated by the six-week labor strike by the United Auto Workers against Ford, General Motors and Stellantis, although an end was in sight.
S&P Global Mobility projected 2023 North American light vehicle production to rise to 15.197 million in 2023 from 14.296 million in 2022, in an Oct. 31 update not yet fully factoring in strike effects. Mobility forecasts a further production increase to 16.287 million vehicles in 2024.
Aluminum cansheet makers Novelis and Kaiser said on recent earnings calls that the sector's destocking may be ending. The aerospace sector remains bright.
P1020 premiums typically weaken in the fourth quarter on book squaring and year-end inventory clearing, while high interest rates have also discouraged trader buying.
Market sources said replacement costs for imports are still close to 25 cents, so if supply tightens or demand returns, they expect premiums to reverse course, possibly after the first quarter of 2024.
The 10% US 232 tariff on aluminum imports is expected to remain, amounting to 10-10.5 cents that is priced into the P1020 premium.
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