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
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
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
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
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
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
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.