The aluminum market is undeniably tight, as consumers are having to wait months for metal and the Midwest Premium rises. In some locations — Europe, in particular — consumers of rolled plate cannot secure new production space until well into Q3.
Some mills have even pulled out of quoting for new business customers in 2021. Anti-dumping legislation on flat rolled products from China and a fire last year at a Russian rolling mill have combined to dramatically restrict supply options for consumers.
Semi-finished product prices are rising and lead times are extending. It is convenient to blame the recent decision to apply substantial anti-dumping duties on 18 countries supplying the US with flat rolled commercial aluminium. The move has severely distorted the supply market. A significant number of major supplying countries, including Germany, South Korea and Turkey, are shut out by the high tariffs.
However, the tariffs are not the only reason the market is tight.
As intended, the supply chain has now switched focus to domestic — or, at least, USMCA members’ North American mills. The result is lengthening lead times and price rises.
Some consumers have asked why the LME primary metal price hasn’t risen further in view of the tight market. The reality is what we are seeing is a distorted supply market, not a global primary metal shortage.
ArcelorMittal today announced a trio of new low-carbon initiatives under the umbrella of what it is calling XCarb™.
“XCarb™ will ultimately bring together all of ArcelorMittal’s reduced, low and zero-carbon products and steelmaking activities, as well as wider initiatives and green innovation projects, into a single effort focused on achieving demonstrable progress towards carbon neutral steel,” ArcelorMittal said.
The program will include green steel certificates for customers.
“Across our ArcelorMittal Europe – Flat Products operations, we are investing in a broad range of initiatives to reduce carbon emissions from the blast furnace,” ArcelorMittal said. These initiatives range from our flagship Smart Carbon projects, such as Torero (transforming biomass into bio-coal to replace the use of coal in the blast furnace) and Carbalyst (capturing carbon-rich blast furnace waste gas and converting it into bio-ethanol, which can then be used to make low-carbon chemical products) to capturing hydrogen-rich waste gases from the steelmaking process and injecting them into the blast furnace to reduce coal use.”
In addition, the program includes recycled and renewably produced “pioneering products.”
Lastly, XCarb™ will also include an innovation fund. ArcelorMittal says it will invest $100 million annually into the fund. The fund will go toward “groundbreaking companies developing pioneering or breakthrough technologies that will accelerate the steel industry’s transition to carbon neutral steelmaking.”
Import prices rise
In addition to today’s ArcelorMittal news, US import prices picked up 1.3% in February, the Bureau of Labor Statistics reported.
Import prices gained, in part, due to higher fuel prices.
Prices for import fuel rose 11.1% in February after rising 9.0% in January.
Aluminum price gains
The LME three-month aluminum price closed Tuesday at $2,201 per metric ton.
A week ago, LME three-month aluminum reached $2,169 per metric ton.
Previous administrations’ focus on China — first on extrusions in 2011 and then foil and sheet in 2018 — succeeded in bringing down imports from 620,000 metric tons in 2017 to 170,000 tons last year, Reuters reported.
However, the wider Section 232 10% tariff is so riddled with exclusions and special exemptions that imports from the rest of the world have continued to make up a significant proportion of the market supply landscape.
Imports of sheet, plate and strip totaled 1.3 million metric tons in 2019. That represented about 62% of total aluminum product imports that year, according to Reuters. Although volumes shrunk sharply to 836,000 tons last year, this was due to the broader COVID-19 disruption to the U.S. manufacturing sector.
Total semis imports last year fell by 20%. Domestic shipments dropped by only 13% through November, suggesting the imposition of preliminary duties in October was already impacting buyers’ decisions.
According to Reuters, the new duties hit seven of last year’s top 10 product suppliers to the U.S. market, including South Korea, Germany and Turkey.
Canada, Saudi Arabia avoid aluminum tariff
The duties spared Canada, however, from which imports increased by 17%. They also spared Saudi Arabia, where Alcoa retains a close relationship with the Ma’aden smelter and rolling mill, despite having divested its 25.1% shareholding in 2019.
That Alcoa and its Saudi partner should essentially get an exemption comes as no surprise.
This morning in metals news: amid GFG Alliance’s financial crisis, ArcelorMittal has reportedly asked for cash upfront to supply Sanjeev Gupta’s steel mills; meanwhile, a so-called “green hydrogen” facility in Germany has started operations; and, finally, the LME three-month aluminum price has trended sideways this month.
Cut-to-length adders. Width and gauge adders. Coatings. Feel confident in knowing what you should be paying for metal with MetalMiner should-cost models.
ArcelorMittal to ask for cash upfront to supply GFG mills
The Aluminum Monthly Metals Index (MMI) picked up 6.3% for this month’s reading, as the China aluminum sector could get a price boost from the 14th Five-Year Plan. Furthermore, the Department of Commerce made anti-dumping and countervailing duty determinations on aluminum sheet.
In short, it could mean a tightening of supply and potentially rising prices in the medium term.
“The environmental targets are part of the new Five Year Plan and, as such, will evolve over the coming years rather than be applied over coming months,” Burns noted regarding the plan’s impact on aluminum. “But it may add a little fuel to investors’ interest in a tightening supply market narrative that underpinned copper and nickel prior to the recent selloff, and to a lesser extent that for aluminum.”
Overall, Burns said he expects China’s latest plan to be supportive rather than outright bullish in the short to medium term.
Xinhua, the state-run news agency, reported this month that China’s 14th Five-Year Plan will promote “green development and facilitate the harmonious co-existence between human and nature during the 14th Five-Year Plan (2021-2025) period, according to a government work report submitted Friday to the national legislature for deliberation.”
Whether the new Biden administration creates a more insightful or sophisticated approach to trade remains to be seen.
But, if nothing else, a new administration is a chance for a reset on policies that have not worked as intended under a previous administration.
Aluminum tariff policy
The previous administration’s Section 232 tariffs on aluminum of 10% were well intentioned. The tariffs aimed to try to reverse the decline in US domestic aluminium smelting capacity.
In recognition of aluminum’s role in defense and aerospace applications, the government viewed the growing level of imports as a threat to national security. As such, creating a barrier to imports intended to allow US smelters to operate profitably and encouraged firms to reopen idled capacity. Furthermore, the hope was that, in time, firms would open new smelters.
The previous decade had been brutal for the US aluminium smelting industry.
But even accepting that the COVID-19 pandemic made 2020 a far from typical year, it has become clear the tariff strategy has not worked on a number of levels.
While the inflationary cost of finished goods has been minor, the aluminum content even of a can of beer is a small fraction of the total product cost. It remains true that consumers have had to foot the bill.
It was always the intention that domestic producers would raise their prices to the import plus tariff price. The corresponding uplift was what was supposed to allow them to operate profitably again, to arrest the decline and reopen idled capacity.
Annualized production rose to 1.15 million tons at the end of 2018 from 750,000 tons a year earlier. The increase, however, proved short-lived. By the end of last year, national annualized production had fallen to 920,000 tons and capacity utilization to about 50%, Reuters reported.
Equally worrying the post states, there has been no new smelting capacity. The United States remains as dependent as ever on imports of primary metal.
Aluminum tariff and Canada
Buyers will remember the spike in prices that followed the reinstatement of tariffs on Canadian aluminium predicated on the “surge in imports,” as the Trump administration claimed at the time.
The reality was Canadian-origin metal had simply made up for the absence of Russian metal following Rusal’s pivot away from the US, largely to Asian markets, following the earlier sanctions on owner Oleg Deripaska. Russian imports collapsed from 725,000 tons in 2017 to only 136,000 tons last year. Shipments from Canada simply filled the gap, rising 10% in 2019.
The previous administration seemed to accept that imports from Canada should not be considered a strategic risk. Ultimately, it removed the tariff in September 2020.
But what of potential suppliers elsewhere? Would it not be of value to the US to widen its non-tariff supply base?
Biden rescinded permission to exempt the UAE recently for what seemed like political rather than national security reasons. China has never exported primary metal, so it remains irrelevant to this policy.
The years ahead
How the US handles imports of semi-finished products going forward will be the topic of a separate post. The US has inherited a fractious trade landscape as a result of the last few years.
It does so at a time of a fundamental re-evaluation of its trade priorities. Many would argue that re-evaluation is long overdue.
That re-evaluation includes its relationship with China. In that vein, the US is better off by working in cooperation with its allies and neighbors than the unilateral policies of the previous administration that have largely failed to deliver benefits.
Cut-to-length adders. Width and gauge adders. Coatings. Feel confident in knowing what you should be paying for metal with MetalMiner should-cost models.
Commodities super cycle?
On the face of it, they appear to have some foundation.
As a separate post in the Financial Times observes, metals, agricultural and oil commodity indices have risen up to 40% since last July.
In part, this is due to a surge of interest in green-energy projects.
The EU, US and China have all promised to spend big. Hydrogen projects alone could receive €30 billion from the EU.
Copper has rallied to eight-year highs, around $8,375 per ton. The metal is benefiting from strong Chinese demand and the prospects for a more rapid transition to electric vehicles gains momentum. Glencore is quoted as saying world copper demand will double by 2050 and that mine investment is insufficient,
All of that certainly makes for a bullish landscape.
This morning in metals news: the Coalition of American Metal Manufacturers and Users called on the Biden administration to rescind the Section 232 steel and aluminum tariffs; meanwhile, the Energy Information Administration forecasts US energy-related CO2 emissions to rise after the mid-2030s; and, lastly, US President Joe Biden spoke this week with Chinese President Xi Jinping.
CAMMU urges Biden to ends Section 232 tariffs
The Coalition of American Metal Manufacturers and Users (CAMMU) sent President Joe Biden a letter Wednesday urging him remove the Section 232 tariffs on steel and aluminum.
In 2018, former President Donald Trump imposed the tariffs of 25% for steel and 10% for aluminum.
“By taking action to terminate the Trump tariffs, your Administration can prevent U.S. manufacturers from shutting down production lines, laying off workers, and potentially even closing their doors,” CAMMU said in the letter. “By contrast, the ripple effects of allowing these Section 232 tariffs to remain are substantial. Our member companies report not only record steel prices, but also delivery times stretching 12-16 weeks, causing significant disruptions.”
As we noted previously, however, Biden reversed Trump’s decision to rescind the tariff on aluminum from the UAE (a move he made on his final day in office).
The Aluminum Monthly Metals Index (MMI) increased by 2.1% this month, as LME aluminum prices traded sideways and the US reinstated the Section 232 aluminum tariff on imports from the United Arab Emirates.
U.S. aluminum reinstates aluminum tariff on UAE
On Feb. 1, President Joe Biden reinstated the 10% aluminum tariff on imports from the United Arab Emirates.
Former President Donald Trump had lifted the aluminum tariff on his last day in office. The reinstated aluminum tariff went into effect Feb. 3.
The reinstatement suggests that it is unlikely the Biden administration will remove the aluminum tariffs imposed by the previous administration. However, as of today, no further decisions were announced on aluminum tariffs.
In addition, Biden’s “Buy American” plans could impact the U.S. domestic aluminum market. The plan will likely promote the manufacturing of essential components in construction, appliances and electronics in the US.
These measures are welcomed at the primary production level. However, not all end-product manufacturers are on board, as they claim these government interventions will artificially inflate the Midwest Premium.
The new administration also announced the delay of the effective date of the Aluminum Import Monitoring and Analysis (AIM) system that the U.S. Department of Commerce created. The Department of Commerce originally said the system would be available Jan. 25. However, it is delaying the launch until March 29. Licenses will not be required for covered aluminum imports until the new effective date.
A Midwest-based trader told Construction & Demolition Recycling that demand for aluminum scrap remains high at secondary smelters that supply the automotive industry in the US
Chad Kripke, an executive vice president of Kripke Enterprise, a nonferrous scrap brokerage firm, confirmed that many sellers are relying on the spot market rather than signing contracts for 2021. This signals that it is a seller’s market.
This market environment is due to the reduced flows of scrap, which has caused spreads to tighten. As a result, secondary producers are opting to purchase scrap at what they might view as high prices rather than risking a lack of material.
Besides the U.S. Midwest Premium Futures, the platform now includes prices for some of the most common forms of aluminum sheet and coil. It includes prices for: 1100 H14, 3003 H14, 5052 H32, 5083 H321, 6061 T6 and 6061 T651.
Price data goes back to Jan. 1, 2020.
Actual metals prices and trends
The Chinese aluminum scrap price increased 0.4% month over month to $2,067/mt as of Feb. 1. Meanwhile, LME primary three-month aluminum increased 0.4% to $1,988/mt.
Korean commercial 1050 aluminum sheet remained flat at $3.30/kg. However, its European equivalent increased 8.3% to $2,948/mt.
Chinese aluminum billet and aluminum bar rose 0.4% to $2,389/mt and $2,489/mt, respectively.
Chinese primary cash aluminum dropped 2.4% to $2,365/mt. Meanwhile, its Indian counterpart declined 2.2% to $2.24/kg.
This morning in metals news: US mines produced approximately $82.3 billion in minerals in 2020; meanwhile, the United States International Trade Commission launched a Section 337 investigation related to batteries; and, lastly, aluminum prices have been dropping.
US mines produced $82.3 billion in minerals in 2020
The totaled marked a decline of $1.5 billion from 2019.
“Decision-makers and leaders in both the private and public sectors rely on the crucial, unbiased statistics and data provided in the Mineral Commodity Summaries to make business decisions and determine national policy,” said Steven M. Fortier, director of the National Minerals Information Center. “Industries—such as steel, aerospace and electronics—that use nonfuel mineral materials created an estimated $3.03 trillion in value-added products in 2020, which represents a 3% decrease from that in 2019.”
The US, however, continues to be heavily import-dependent for many raw and processed minerals. According to the USGS, imports made up more than half of US consumption of 46 nonfuel mineral commodities. Furthermore, the US was totally import-dependent for 17 of those.
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USITC launches Section 337 battery investigation
The USITC announced it had launched a Section 337 probe involving potential patent infringements related to batteries, citing 13 Chinese firms as respondents in the case.