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US aluminum futures bid as imports continue to decline

CME Group’s AUP Midwest premium futures forward curve continued to rally throughout the curve on July 12 as spreads eased and buying has started to come into the market for Q4 and into 2022, with rising ocean freight costs limited imports of P1020.

The labor and scrap markets remain tight along with rising freight costs, increased demand came in for P1020 and aluminum slabs from mills unable to obtain monthly scrap requirements.

The futures contracts trade on CME Globex and CME Clearport and settle on a monthly basis against the Platts Midwest transaction premium. The premium reached a record high of 30.10 cents/lb on July 7 and has held there since, backing out the 12.427 cents/lb import duty as of July 9. It is still below 2015 levels when there were extended LME warehousing queues. Market sources said replacement costs could be pushing 35 cents/lb.

The July contract settled up 2.25 cents/lb on the week at 30 cents/lb on July 12.

The July/August spread flipped to a 0.10 cent/lb contango on July 12 after trading at a 0.50 cent/lb backwardation on July 7, as July traded up to 30 cents/lb and as inventories continued to draw on steady demand and traders try to restock, especially into Baltimore and the Gulf. The Toledo area seems to be fairly well-stocked, market sources have mentioned.

Supply remains tight

The July/October spread narrowed settling at 1.12 cents/lb. Some rolling of positions continued especially from July into August/September, which traded around flat with fresh buying continued to come in further down the curve in 2022.

The Q3/Q4 spread loosened during the previous week, trading around a 1.25 cents/lb backwardation, as August traded up to 30.15 cents/lb during the week ended July 12.

The fourth quarter saw more activity week on week as some positions were rolled into in Calendar 2022 which traded up to 24.85 cents/lb on July 12 as some buying has come in through banks from consumers.

“Trucking and rail as eased a bit but ocean freights and traffic remain high,” a consumer said.

With the backwardation holding further out, market participants are still actively selling the front-month contracts and buying further dated strips in 2021 to capture some of the backwardations and restock inventories.

• AUP total volume was 649 lots or 16,225 mt for the week ended July 9. Open interest finished the week at 20,630 lots, up 98 lots from the July 2 close and the June contract expiration
• Spot/six-month premium spread settled at a 5.10 cents/lb backwardation on July 12
• Cash/three-month spread on the LME settled at a $19.50/mt contango
• Cash/December spread on the LME settled at a $21//mt contango
• Net speculative long positioning dipped to 17% of OI as of the July 1 close

The spot-to-six months premium spread held its backwardation over the previous week and averaged 4.39 cents/lb during that time.

The last Commitment of Traders report by the US Commodity Futures Trading Commission showed that as of the July 6 close, long positioning by swap dealers declined by 1,552 lots during the week to 11,318 lots as the June contract expired, with spread activity was down 277 lots to 571 lots. The short positions by managed money decreased by 554 lots to 615 lots.

The Census Bureau May trade data released on July 2, showed imports of P1020 from Canada were down 23.1% from April to 107,719 mt and total global imports of P1020 were down 16.9% to 136,177 mt.

“The premium still isn’t high enough to attract units especially with rising container costs,” a trader said

The US Trade Representative has not given any further guidance on quota amounts for 2021, keeping the Canadian supply of P1020 in the US tight and increasing upcharges on higher-purity metal such as P0610 and P0506.

Traders have been cautious on imports from Canada where they are the importer, market sources have said.

Even with Canada shifting much of its primary aluminum production to value-added products, the market continues to run short and as the announcement from Russia on an export tax has supported the US spot 6063 billet premium hit 23 cents/lb on June 17 and has held that level.
Source: Platts

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