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Some optimism seen in billet market

Keywords: Tags  billet premium, aluminum billet, extrusions, building, construction, London Metal Exchange, LME, Century Aluminum Alcoa

CHICAGO — Market participants remain divided on whether the aluminum billet market is seeing an uptick in demand after a slow first quarter, with some contending that building and construction activity is picking up and others reporting little change in order entry rates.

The billet market remained slow through April, most market players agreed, but some said this past week that May is looking much better than the previous month and that June is shaping up to be even stronger.

"It’s looking a little better. It’s not great, but we’ve got enough to keep our plants busy," a billet producer said. "We hadn’t seen the seasonality kick in. So maybe that’s what we’re starting to see."

The producer’s company made some recent spot deals with a billet premium of 12 to 13 cents per pound, he said, but acknowledged that the orders with higher premiums were for smaller volumes.

A second producer said that the scrap market has loosened up with warmer weather and that his company has been "pleasantly surprised" by June commitments from customers in the building and construction sector. Yet despite the reported uptick, he characterized the market as only "holding its own" in general and pegged premiums in the range of 11.5 to 12.5 cents per pound.

As a result of the reported sales, AMM’s aluminum billet premium range widened to 11.5 to 13 cents per pound from 11.75 to 13 cents per pound previously.

A third billet producer said he had still seen no seasonal boost in orders. "It’s still slow," he said, noting that his most recent deal was for 500,000 pounds at a premium of 11.75 cents.

Still, an aluminum trader said that optimistic sentiment among some of his customers was "slowly coming to fruition."

Several customers who he described as "precursors" to building and construction are seeing business picking up, he said. "At some stage that is going to translate into more demand for extrusions," the trader said, noting that contracts for June came in stronger than anticipated. "Was it that winter held on and everything is a month late? I don’t know. But there does seem to be a bit of confidence out there."

The trader pegged premiums at 12 cents per pound, which he said most extruders recognized as a fair price—one that represented neither gouging nor discounting. He questioned the motives of market players who might be selling below 12 cents, suggesting they might be under pressure to turn inventory. "If I (sold at under 12 cents), I sure would have to explain it to my boss," he said.

But one consumer said premiums were unlikely to rise until capacity came out of the market, and that won’t happen with Century Aluminum Co. buying and continuing to operate Montreal-based Rio Tinto Alcan’s facilities in Sebree, Ky., which include billet capabilities, he said.

Monterey, Calif.-based Century agreed in late April to acquire Rio Tinto Alcan’s operations in Sebree for $61 million in cash and the assumption of $4 million in liabilities. Century also received $71 million in working capital from Montreal-based Rio Tinto Alcan as part of the deal (, April 29).

Pittsburgh-based Alcoa Inc.’s review of its operations won’t do the trick either, the consumer said. Alcoa said it is considering cutting as much as 460,000 tonnes of smelter capacity over the next 15 months as aluminum prices remain stubbornly low (, May 1).

"There has been a little saber rattling. But they’ve got to do more than that to impress people," the consumer said, reporting premiums at 12 cents to 12.25 cents "at most."

The cash primary aluminum contract on the London Metal Exchange ended the official session at $1,827.50 per tonne May 13, down 1.1 percent from $1,848 per tonne May 10 and off 13.9 percent from a 2013 high of $2,123 per tonne on Feb. 15.

The first billet producer said his company had worked hard to limit maintenance downtime and boost productivity as a result. "Because the price of metal is so low, the plants are under a lot of pressure, and the only tool they have in their toolbox is producing more to compensate for lost revenue from the (low) price of metal," he said. "Everyone is very focused on producing more."

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