Aluminum Spotlight panelists discussed historic price spreads and the byzantine process to move finished aluminum out of LME warehouses.
Global finished and primary aluminum prices have been relatively stable in the past 12 months, but aluminum in the U.S. Midwest has gained in value, providing one of many market curiosities discussed by Aluminum Spotlight session panelists at the Institute of Scrap Recycling Industries Inc. (ISRI) 2014 Convention & Exposition in Las Vegas in April.
Session moderator Matt Kripke of Kripke Enterprises, Toledo, Ohio, said the Midwest Premium price of aluminum has surged as high as 17 cents per pound against London Metal Exchange (LME) primary aluminum pricing in 2013 and early 2014.
|From left: Matt Kripke, Edward Meir and Mike Southwood
Panelist Mike Southwood of London-based information services company CRU said the wider spread was tied to an aluminum supply deficit in the United States that CRU estimates at some 3.5 million tons per year. “We consume more aluminum than we produce,” said Southwood of the U.S., adding that “production has not kept pace” with demand that has rebounded since the end of the subprime mortgage crisis and recession of 2008 and 2009.
Southwood said the supply deficit could be closed with imports from places such as Russia and the Middle East or by tapping into inventories in LME warehouses.
Regarding the latter option, aluminum consumers have been protesting the perceived snail’s pace process of retrieving aluminum from LME warehouses located in the U.S., most notably the warehouse in Detroit.
News reports have pointed to waits as long as 18 months to remove aluminum from storage at the Detroit LME warehouse. Audience member Tom Mele of Connecticut Metal Industries Inc., Ansonia, Conn, asked panelists “Why does it take 18 months to load a truck? We [scrap processors] can do it in an hour.”
Southwood said the Midwest premium is likely to shrink throughout 2014 as owners of physical inventory have been tapping into their warehoused supplies. He said some 79 percent of the aluminum in the Detroit warehouse has been requested for delivery by its owners, “an all-time high.”
Globally, Southwood said CRU saw strong demand for aluminum in a rebounding world economy as helping to push LME prices higher in “a gradual and modest rise” in 2014, with aluminum prices averaging $1,762 per metric ton during the year.
Fellow panelist Edward Meir of INTL FCStone, Stamford, Conn., said aluminum industry surpluses in China could act as a restraint to higher pricing in 2014. Producers in China, said Meir, “have the capacity to produce 45 million metric tons—all the aluminum [consumed] in the world.”
Meir said his sources indicate that half of the aluminum smelters in China are losing money and that the government is becoming increasingly reluctant to provide subsidies. If the Beijing government is serious about letting the market determine winners and losers in the aluminum sector, said Meir, it will go a long way toward solving the overcapacity issue.
Despite his concerns about China’s overcapacity, Meir forecasted a 2014 average figure of “about $1,800” per metric ton for aluminum on the LME, spurred in part by stronger U.S. demand. “After three years of bear markets, I think we’re on the mend,” said Meir.
The ISRI 2014 Convention & Exposition was April 6-10 in Las Vegas at the Mandalay Bay Resort & Casino.