CHICAGO Aluminum billet upcharges have increased due to higher scrap and ingot premiums as well as expectations of solid first-quarter demand, according to market sources.
AMMs spot Midwest 6063 extrusion billet upcharges have increased to 12 to 13 cents per pound from 11.5 to 12.5 cents previously.
"The scrap guys are squeezing at the same time that the ingot guys are squeezing, and the billet guys cannot take the hit," a source at one remelt billet producer and extruder said. "And if you get squeezed on the bottom, its going to push the price up at the top."
AMMs spot P1020 premium jumped to 20.5 to 21 cents per pound Jan. 22 from 19 to 20 cents a week earlier and 11.5 to 12 cents at the beginning of this month. Some billet industry sources said they were now paying a Midwest premium of 21 to 21.5 cents per pound, although it was not immediately clear if those figures were representative of the entire market.
The remelters comment echoed those of other billet producers and extruders, who said that an unprecedented increase in Midwest premiums had caught them by surprise, as had additional premiums charged by traders that were justified as necessary to cover replacement costs.
"Were struggling with that," another remelter and extruder source said of passing along the extra premiums. "And not in my wildest dreams would I have thought (the) Midwest (premium) would go as high as it has. ... It went straight up, and Im hoping to catch it on the way down. But this month, Im screwed."
Some billet players said there was a silver lining in skyrocketing Midwest premiums: a readiness on the part of traders and producers to part with metal.
A third billet producer source recounted looking for metal from supplierseven for large ordersand being rebuffed. "A month ago, youd call for prime and theyd just laugh at you," he said. "Now you call, and theyll line up a deal because theyre finally able to make money by selling the product instead of financing it. ... So were able to buy metal now, which is a wonderful concept."
Still, some market sources argued that increases in billet premiums were based not on input costs but instead on increased orders and the expectation of a ramp-up in business activity in February and March. "The Midwest (premium) seems to be overshadowing everything right now. But what should be news is that things are picking up," a fourth producer source said.
Increased demand from the transportation market and building and construction sectors are driving the increase, some sources said. Others said it was too early to say what might be behind the uptick, but noted that customers were ordering toward the high end of their contracted volumes and, in some cases, asking for spot metal on top of previously negotiated maximum volumes.
More spot activity is another characteristic of the 2014 market, some sources said, although they added that the boost in spot business reflected a return to normal levels. Many consumers planned to reduce contract buys in 2014 after they overbought in 2013 in expectation of a billet shortage that never materialized, market sources said.
Continued harsh winter weather in much of the United States and Canada, which has made securing trucks and getting on-time deliveries difficult, also is stirring the market, sources said. However, the worker absenteeism that followed heavy snows and caused scattered shutdowns earlier this month has largely abated, they said.