CHICAGO Aluminum billet premium outlooks have diverged as annual contract negotiations shift into high gear, with consumers arguing that premiums should ease in 2014 on less-than-robust demand and increased capacity, while producers insist they will hold or increase premiums and that additional capacity is not yet a factor in the market.
The disagreement comes as the Aluminum Extruders Councils Management Conference and the Institute of Scrap Recycling Industries Commodities Roundtable Forum get underway in Chicago this week.
Many producers and consumers are expected to hammer out annual deals during or soon after the events.
AMMs spot billet premiums have dipped to 11 to 12.4 cents per pound from 11.5 to 12.75 cents previously. While some producers said they had booked business at premiums of 11 cents, others insisted they would not let metal go for less than 12 cents.
On the contract front, while producers and consumers disagree on the direction of the market, both acknowledged that deals arent being signed with the urgency they were in 2012, when there were concerns that a possible shutdown at Alcoa Inc.s majority-owned Aluminerie de Bécancour Inc. could cause a billet shortage in 2013. The rumored shutdown never happened (amm.com, Feb. 22).
This year has seen contract talks progress along a more traditional timeframe, market sources said.
"(Consumers) are trying to talk it down because ... youre coming into the mating season right now," one trader said. Business also is slow on the spot side. "People are guarded for the fourth quarter about their inventories for year-end. Theyll take quantities from their annual contracts. Youll see some spot material here and there, but it will only be on absolute need," he said.
The market is "dead," one producer source said, with automotive solid but other sectors flat or down. "Demand is steady, but it hasnt picked up. Contracted volume is slowing, and people dont have incremental sales to support additional spot volume because they are struggling just to maintain their minimum contract quantities," he said, referring to "min-max" supply contracts.
But other market sources, especially other producers, strongly disagreed with such bearish sentiment. "From everything I see, contracts are holding or exceeding last years prices," a second producer source said. "We havent backed up one inch on pricing." He also brushed aside concerns about new capacity as not relevant to 2014 negotiations. "You cant extrude announcements. You can only extrude billet," he said.
Among recently announced capacity expansions, Matalco Inc. has short-listed Indiana, Michigan, Ohio and Pennsylvania for its planned $70-million remelt extrusion billet facility (amm.com, Aug. 26) and Global Aluminum (USA) Inc. is planning to upgrade its Aluminum Shapes LLC and Signature Aluminum Canada Inc. operations (amm.com, Sept. 13).
A third producer source said contract talks were progressing well. "The music is going and the dance has started," he said. "Pricing is slightly better this year, but its nothing to write home about. Its nothing like the 2012-13 rollover."
There is some uncertainty about power agreements at other billet producers, he said, but in general his company was seeing a return to normal contract-season patterns, with smaller customers generally signing pacts earlier than large buyers, who continue to fight for better deals.