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Low nearby demand for aluminium and value-added products (VAP) remains a concern for market participants who cite increased selling pressure and high financing costs as factors putting downward pressure on the market.
“Everyone is trying to sell, but there are not many people who are looking to pick up units,” a European trader said.
Fastmarkets assessed the aluminium P1020A premium, in-whs dp Rotterdam at $240-260 per tonne on Friday September 15, falling over 5% from $255-275 per tonne the previous week and dropping to its lowest level since December 2022.
The premium is now 59% lower than its all-time high of $600-630 per tonne in May 2022.
“I’d really like to sell some metal, but it’s difficult right now,” a second trader said.
“Financing costs are too high; everyone is trying to destock and it’s likely we’ll continue to see distress sellers over the next few months,” they added.
Participants at the conference in Barcelona were discussing when it was likely that demand will return in full force to the market.
“Everyone is speaking about [the second quarter] of 2024, this is hopeful but I still think it is maybe a bit unrealistic,” an aluminium consumer said.
The poor demand has now resulted in surplus metal supply coming onto the market, participants noted, following a change in fortunes for the packaging sector that has also resulted in excess slabs being offered.
While other sectors such as automotive, and low-carbon markets continue to report good demand, construction and packaging continue to weigh on aluminium premiums.
While sentiment remained subdued in the European market, eyes were on China following the recent opening of the import arbitrage window, with several participants noting increased opportunities to sell into the region.
“We’ve been selling some parcels into China, and heard others are doing the same. It’s more of an opportunistic move for now but there is a real demand for tonnes,” a third trader added.
Fastmarkets’ assessment of the aluminium import arbitrage stood at a gain of $12.51 per tonne on Monday September 18, swinging from a loss of $16.63 per tonne a month earlier.
Market participants have overestimated China’s capability to stimulate its way out of the Covid-lockdown era,
“Market participants have overestimated China’s capability to stimulate its way out of the Covid-lockdown era, placing too much emphasis on Chinese authorities’ ability to bring about a strong recovery. That has not been the case for the past nine trading months of 2023, which has changed market participants’ perception,” Fastmarkets analyst Andy Farida said.
“Right now, though, we believe that market participants are underestimating China’s eagerness to put growth supportive-policies in place, which may well leave many chasing to the upside,” he added.
Fastmarkets assessed its monthly aluminium P1020A premium, cif Shanghai at $110-120 per tonne on August 29, rising from $80-110 per tonne on July 25, and up from $60-100 per tonne at the beginning of the year. The premium is published on the last Tuesday of every month.
But others were unsure regarding the longevity of opportunities to sell into the region, and questioned whether the strength of Chinese demand would be enough to stimulate other global markets.
“People are watching China, but it seems to be lacking any physical fundamental support from my understanding. Sure, there are a few people who are able to sell in, but I doubt it will last for long,” a fourth trader said.
The low-carbon aluminium differential for P1020 in Europe hit its highest level since it was launched in 2021 while demand for green units remains strong despite weaker underlying premiums.
Fastmarkets assessed the aluminium low-carbon differential P1020A, Europe at $25-40 per tonne on September 1, compared with $10-30 per tonne at the start of the year and at its highest on record.
Participants are now looking at replicating this across the other key global markets such as Japan and the US.
Market participants told Fastmarkets that green upcharges of $11-20 per tonne were already being achieved on the market in Japan, amid limited availability of low-carbon metal supply in the region.
However, some participants did note that the weak underlying markets for ingots and value added products in Europe was making it harder to achieve green upcharges while there was such ample supply of material.
The incoming carbon border adjustment mechanism (CBAM) policy could lend support to the European low-carbon differentials amid a change in material trade flows and focus on carbon content in the metal.
Most participants remained watchful of the upcoming transitional phase of the European CBAM, which will start with a reporting-only period from October.
There remained confusion about the real-world implementation of the policy as it approaches full rollout in 2026.
There were questions over whether Europe would still attract metal which may be produced with higher carbon emissions, and would therefore pay for the carbon embedded, pushing up all-in prices and risking the reduction of brand diversity on the market.
With more than 1 million tonnes of European aluminium production curtailed during the energy crisis, participants noted that the continent would be at risk of supply shortages as demand increases again if sellers no longer send higher carbon metal into Europe.
“It’s emphasizing the problem if the market is more dependent on imports far away from outside of Europe,” a fifth trader said.
One aluminium products producer said their business would transition to using more aluminium scrap ahead of 2026, with their expectations that post-consumer recovered material could become more valuable than primary P1020 due to the growth in demand for its low-carbon properties.
Fastmarkets launched its secondary aluminium billet assessment earlier this year to bring transparency to the growing use of scrap.
Fastmarkets’ monthly assessment of the secondary aluminium billet premium, ddp Europe was at $480-500 per tonne on September 1, down from $500-520 per tonne on August 4.
Bearish sentiment over the European construction sector showed no sign of abating during the conference, with the widely reported weakness looking set to remain a dominant factor for subdued billet demand.
Participants also noted that the premiums were fast approaching the cost of production for many producers, with eyes on gas and energy prices as winter approaches.
“Nobody’s making money, it’s challenging, people are still digesting stocks,” the fifth trader said.
Fastmarkets assessed the aluminium 6063 extrusion billet premium, ddp Italy (Brescia region) at $440-480 per tonne on September 15, down by more than 30% from $650-700 per tonne at the beginning of the year.
Several billet producers were heard to be reviewing their capacity for the fourth quarter of 2023 and into the start of 2024, with curtailments likely to take tonnes out of the market.
The region continued to attract imported material, while sellers in Europe also had stocks to hand, maintaining the pressure on premiums, further compounded by the ongoing lack of consumer demand.
The uncertain macroeconomic outlook was a key factor in the subdued consumer confidence, with the European Central Bank continuing to increase interest rates to record highs.
Some extruders had temporarily moved away from buying P1020, instead opting to pick up lower priced billet from the market, saving on conversion costs, and increasing the ingots left available on the market.
Lower offers were heard over the week for the Japanese fourth-quarter negotiations, with participants continuing to note tepid buying interest in the region despite previous expectations of a stronger second-half performance.
“There is still a lot of stock around in the Japanese market. We’ve seen some lower offers on the [fourth-quarter] negotiations, but I think consumer expectation is for the premium settle in the double digits,” a Japanese trader told Fastmarkets.
Producer offers for premium negotiations in the fourth quarter were heard at $108-110 per tonne, according to market participants, coming in at over 10% lower than the premium in the third quarter.
Fastmarkets assessed the aluminium P1020A (MJP) quarterly premium, cif Japan at $118-127.50 per tonne on July 31, falling from $125-130 per tonne in the second quarter of 2023.
Demand for aluminium from the building and construction sector stood at 207,700 tonnes in the first half of 2023, down by 7.1% from 223,700 tonnes in the first half of 2022, according to the Japan Aluminium Association.
And participants at the conference noted mixed feedback on the performance of the Japanese automotive sector, which was also not yet providing much support to spot premiums in the region.
Fastmarkets assessed the aluminium P1020A (MJP) spot premium, cif Japan at $80-100 per tonne on Tuesday September 19, falling from $90-110 per tonne one week earlier and down from the 2023 high of $130-150 per tonne at the end of May.
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