NEW YORK Aluminum billet consumers have started the new year with excess material on the floor after they purchased extra billet in 2012 in case labor contract talks at Alcoa Inc.s Aluminerie de Becancour (ABI) smelter in Quebec turned sour.
Few 2013 spot deals have closed as a result, keeping premiums between 11 and 13 cents per pound.
"We ordered more than we would have otherwise in anticipation (of a strike or lockout at ABI). We usually try to get (inventory) down at the end of the year, but we stocked up for December, January and February," an extruder source told AMM. He estimated that he has between 20 and 40 percent more material than normal.
"We havent had any spot business yet. Everyone went long on billet due to worries about ABI and Ive seen some depletion in December due to destocking. There is definitely excess inventory right now," a producer source said. "Theres a January hangover."
Another producer source said his customers purchased a couple of weeks worth of excess material at premiums between 12 and 13 cents per pound.
Alcoa and the United Steelworkers union have been attempting to negotiate a new contract covering some 900 employees at the 400,000-tonne-per-year ABI smelter since Sept. 11. Discussions between the two parties are ongoing.
A strike or lockout would make billet supply, which has been tight, even more scarce, and potentially send spot premiums soaring.
Despite a slow start to 2013, one producer completed a spot deal at a premium of 12.9 cents per pound, and has already received inquiries for forward purchases. "Im starting to be a bit more positive. General markets are better," he said. "Were expecting (extrusion demand) in the 6- to 8-percent range."
"One customer asked us (for spot) but I told him no. We dont have any," a third producer source said.
A fourth producer source said that it will take a while for consumers to work through inventory, but he anticipates that some end marketsheating, ventilation and air-conditioning (HVAC) components, residential construction and automotivewill all take off in a few months. "As we get closer to springtime, youre going to see manufacturing pick up again and lots of buying. It will be a snowball effect," he said.
Reactions to the fiscal cliff resolution were mixed.
"Keeping the tax policy fairly similar to where it was is good, but its a small part of what needs to be done. I dont think what was passed is a sustainable solution," the extruder source said.
The fourth producer source said he believes that once consumers realize "the sky isnt falling" and continue to receive orders, confidence will return and it will be business as usual.
"At some point, we have to start running our business instead of wondering whether the politicians will make sense of anything," the first producer source said. "Demand is decent. Yes theres a bit of a lag, but thats typical. Were going to see a definite pickup in the spring."