NEW YORK Aluminum billet premiums widened this week due to weaker demand and excess supply.
Billet premiums dipped to 11 to 13 cents per pound Tuesday, down from 12 to 13 cents per pound.
This marks the first time premiums have softened since July 2011.
Producers and consumers say that its likely just a typical year-end slowdown, although some fear it could be a sign of more sinister things to come.
Its quiet. Is it something more than seasonality? Thats the question, a producer told AMM
. It certainly feels like heavy seasonality. But then again, people may be far more aggressive with inventory and inventory control.
Theres been some softening, a second producer said. Right now, spot (premiums) arent very high. Theres some available capacity.
Tight North American billet supply coupled with solid demand from a number of end markets kept spot premiums around 12 and 13 cents for most of 2012.
This years market dynamics also encouraged producers to push up 2013 contract premiums by an average of 2 cents per pound, with some contracts signed at 12 cents per pound up from 10 cents this year.
Producers and consumers remain divided on where premiums will head next year.
I dont think its just seasonal, a consumer said on the slowdown. Were starting to see more signs of it. Im concerned about the fiscal cliff.
If nothing comes out of Washington and tax cuts implemented in 2001 and 2003 arent renewed, economic growth and demand could suffer next year, the consumer argued.
Im not sure it will be a depression, but I dont think the current administration values business. If you were a farmer and milking the cow, theres a certain regiment in nutrition to get as much milk from the cow as possible. You wouldnt beat it, cuss at it or give it less food and water, the consumer said.
Ultimately, softer demand could depress billet premiums next year, he said.
(Contract premiums for 2013) are up by two cents, but well see what happens next year. (We) may be able to shove the cigar up someone elses nose if we end up with continued softness in demand, the first consumer said.
The fiscal cliff notwithstanding, producers maintain that demand for certain end markets, including the automotive market, looks reasonably bright, and they expect that extruders will continue to stay busy.
Ill be honest: I dont see (premiums) going backwards. Ever, a second producer said. Once we get into next year, extruders will be busy and billet will continue to be tight.
Billet supply stands to get even tighter if Pittsburgh-based Alcoa Inc. and the United Steelworkers union fail to reach an agreement for some 900 workers at Alcoas Aluminerie de Bécancour Inc. (ABI) smelter in Quebec by the Nov. 22 deadline.
The union started parking trailers in front of the smelter in anticipation of a lockout last week (amm.com, Nov. 13
Our projections are that billet will continue to be tight in the coming years, and thats discounting ABI, the second producer said. If they go on strike, it will get really ugly.
I can tell you, the ABI situation has some of their customers nervous, a third producer said before adding that his company had received roughly 1 million pounds worth of orders this month from Alcoa customers expecting the situation in Canada to go south.
Even if a strike or lockout were to last just a week, that would affect billet markets for up to six months, as turning potlines on and off is not as simple as flipping a switch.
All of this points to premiums rising, producers said.
If they go on strike and idle any pots, theyll stay idled for a while. They cant just turn them back on overnight, the second producer added. Even a two-week strike could impact aluminum production for several months.
If ABI goes out, and this current slowdown is nothing more than seasonal, spot premiums will go north of 15 cents (next year), the first producer said. I would say next year is in tight balance. Any swing to the deficit will lead to over-exaggerated premiums.