US aluminum futures rally on continued logistics concerns

CME Group’s AUP Midwest aluminum premium futures forward curve rallies on Sept. 13 as bullish market sentiment continues to mount.

The structure of the curve has loosened on ongoing supply and logistics concerns through the first quarter and ahead of contract season.
The labor market remains tight. Elevated freight costs and solid consumer demand for P1020 and aluminum slabs from mills unable to obtain monthly scrap requirements have supported premiums. Barging from the South also remains limited after the effects of Hurricane Ida.

The futures contracts trade on CME Globex and CME Clearport and settle on a monthly basis against the Platts Midwest transaction premium.

The premium sat at the record high of 34.75 cents/lb on Sept. 10 and backing out the 14.608 cents/lb import duty, it was still below 2015 levels when there were extended LME warehousing queues. Market sources said replacement costs could be pushing 38 cents/lb or even slightly higher.

Concerns around logistics supportive
The September/October spread eased during the previous two weeks, settling at a 1.30 cent/lb backwardation on Sept. 13. October traded up to 34.25 cents/lb. The September/October spread traded tighter to around 1.50 cents/lb and as inventories continued to be drawn on steady demand and as traders tried to restock depleting inventories — especially into Owensboro and the South as market sources have noted ample Toledo, Ohio, warehouse stocks. Also noted by sources were high costs to move metal from Midwest Terminal Toledo further inland.

The October/November spread eased as spot indicative ranges moved higher as well as an increasing bullish sentiment, settling at a 0.486 cents/lb backwardation, after trading around 1 cent/lb. Some rolling of positions continued, especially into 2022 contracts as fresh buying has come into the first quarter of 2022 and open interest rose.

The Q4 21/Q1 22 spread continued to loosen during the week ended Sept. 13, trading around a 2.50 cents/lb backwardation, as the Q1 2022 strip traded up to 30.75 cents/lb, up by 4.35 cents/lb from Aug. 24.

The 2022 contracts had more activity week on week, as fresh buying came in the market, with Q2 2022 trading up to 27 cents/lb and trading at a 2.50 cents/lb backwardation to the first quarter strip. Activity has continued to come in through banks from consumers.

“Decent size consumer RFQs have been coming out,” a trader said

With the backwardations holding out farther, market participants can still actively sell the front-month contracts and buy forward-dated strips in 2021 to capture some of the backwardations and restock inventories.

• AUP total volume for the week ended Sept. 10 was 1,106 lots or 27,650 mt. Open interest finished the week at 20,792 lots, up 887 lots from the Sept. 3 close
• Spot/six-month spread settled at a 4 cents/lb backwardation on Sept. 13
• Cash/three-month spread settled at a $13/mt backwardation
• US Primary aluminum production was 75,729 mt in August: Aluminum Association
• Canadian aluminum production was 253,574 mt in August: Aluminum Association

The spot-to-six months premium spread held its backwardation over the previous week and averaged 4.725 cents/lb during that time.

The last Commitment of Traders report by the US Commodity Futures Trading Commission showed that as of the Sept. 7 close, long positioning by swap dealers decreased by 1,260 lots during the week to 11,552 lots, with spread activity down 239 lots to 447 lots. The short positions by managed money decreased by 271 lots to 638 lots as the August contract expired losing 3,473 lots.

US Census Bureau July data showed that imports of P1020 from Canada were 114,735 mt, down 6.5% month on month.

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 about imports from Canada where they are the importer, market sources said.

“Supply is still tight and labor and logistics are issues,” a second trader said.

Even with Canada shifting much of its primary aluminum production to value-added products, the market continued to run short. The announcement from Russia on an export tax has continued to support premiums globally.

Platts US spot 6063 billet upcharge reached a record high of 28 cents/lb on Aug. 12, but pulled back slightly to 25 cents/lb as of Sept. 9 as 2022 contract negotiations start.
Source: Platts