contract negotiations for 2014 could be difficult as the
outlook clouds just as talks begin and spot premiums slip on
weaker-than-expected demand and abundant metal
billet premium range dropped to 10.75 to 12.25 cents from 11 to
12.50 cents previously.
"At the moment there
is surplus metal," one consumer source said. "And when you look
at overall demand, its not as strong as some people had
hoped it would be." Producers may try to hold the line in the
face of increased costs, but the marketand not
costsultimately determine premiums, he said.
But producers took the
opposite stance, contending that demand was flat to up slightly
and predicted that modest improvements in business levels would
continue through the second half of 2013 and into 2014. At the
same time the market is slowly improving, production cuts could
reduce billet availability, some warned.
Even producers less
than bullish on their own business prospects said they
couldnt afford to drop (contract) premiums given tight
metal spreads and increased energy costs. "Billet consumers
have a hunch that there will be more availability this year,"
one producer source said. "But Im getting squeezed, scrap
spreads are evaporating and so Ive got to hold the
Remelters face higher
costs not only because of a tight U.S. scrap market but also
because some have been pushed into buying P1020 as a scrap
substitute, which is more expensive than scrap and also
requires buying alloys such as magnesium that are ordinarily
contained in used beverage can (UBC) feedstock, producer
producers might look to offset eroding Midwest premiums with by
boosting billet premiums, billet producers said, although some
questioned whether such a trend would develop if aluminum
prices on the London Metal Exchange continue to improve.
Several market sources argued that billet premiums would likely
remain unchanged in 2014.
reduce premiums because of scrap spreads and a low LME
(aluminum price) means primaries cant afford to reduce
them either," one trader said.
The divergent outlooks
held by producers and consumers could lead to tense contract
negotiations, which are already under way but are expected to
heat up in September, market sources said. Discussions could be
more rancorous those in 2012, when market participants
sometimes worried more about supply than premium given
expectations of a strong 2013 demand and a potential billet
shortage resulting from a labor disruption at Pittsburgh-based
Alcoa Inc.s majority-owned Aluminerie de Bécancour
Inc. that never happened (amm.com, Feb. 22), they
"Last year was arm
wrestling. Were punching this year," the producer
While some market
sources said they were only beginning to put together budgets
and forecasts for 2014, others said they had already started
talks. Most said they expected discussions to conclude at or
before Institute of Scrap Recycling Industries Inc. and
Aluminum Extruders Council meetings in mid-September in Chicago
or by early October at the latest.
A second producer source noted that the situation contrasts
last years, when he concluded most contract talks shortly
after Labor Day.