US aluminum futures steady amid freight challenge

CME Group’s AUP Midwest aluminum premium futures continued to rise May 17, as supply remained tight and logistics concerns continued, especially across trucking and barging.

The futures contracts trade on CME Globex and CME Clearport and settle on a monthly basis against the S&P Global Platts Midwest transaction premium.

Supply continues to remain tight as it is hard for mills to find labor and transportation, along with a tight scrap market. Increased demand for P1020 and aluminum slabs came from mills unable to obtain scrap for May.

“Scrap is extremely tight, with little around. Price doesn’t matter,” a consumer said.

Platts US Midwest premium hit a record high of 26.40 cents/lb on May 13 and has held there since. Backing out the 11.958 cents/lb import duty as of May 14, the US Midwest premium is still below 2015 levels, when there were extended LME warehousing queues. Market sources have said replacement costs are now pushing 30 cents/lb.

The May contract settled up 0.21 cent/lb week on week to 26.31 cents/lb on May 17.

The May/June spread loosened slightly to a 1.075 cents/lb backwardation on May 17, as inventories have continued to draw on steady demand and traders continued to restock, especially into Toledo, New York and Baltimore.

“Demand is good. Freight still an issue with a shortage of trucks,” a trader said.

With the backwardation holding further out, market participants are still actively selling the front-month contracts and buying further dated strips in 2021 to capture some of the backwardations and restock inventories.

The June/July spread loosened again, settling at 2.002 cents/lb, as July/October spread tightened to settling at 2.233 cents/lb backwardation on May 17. Positions have been rolled from Q3 to Q4 as fresh buying has come in across the curve. The Q3/Q4 spread loosened as well, settling just under a 1.80 cents/lb backwardation.

The Q4 strip was bid slightly higher on the week to 21 cents/lb as continued activity was seen at higher levels in 2022. Fresh buying came into the market in Calendar 2022 up to 17.90 cents/lb on May 12 followed by Q4 2022 trading 17.25 cents/lb on May 14. This loosened the Q4 2021/Q1 2022 to around a 3 cents/lb backwardation, as the market started to price in some relief in freight costs and some increase in import flows.

• AUP total volumes totaled 2,179 lots or 54,475 mt for the week ended May 14; open interest finished the week at 23,549 lots, up 1,104 lots from the May 7 close
• The spot-to-six-month spread settled at a 5.344 cents/lb backwardation
• The cash/three-month spread on the LME settled at a $28.55/mt contango
• Cash/December spread settled at $35.30/mt contango
• Net speculative long positions on the LME rose to 54% of OI as of the May 11 close: Marex

The spot-to-six months premium spread held its backwardation over the previous week and has averaged 5.256 cents/lb during that time.

The last Commitment of Traders report by the Commodity Futures Trading Commission showed that as of the May 11 close, long positioning by swap dealers increased by 479 lots during the week to 12,673 lots, as spread activity decreased by two lots to 890 lots. The short positions by managed money was unchanged at 998 lots.

US Census March data released May 4 showed 124,392 mt of primary unalloyed aluminum was imported into the US, down 26.42% year on year. Imports from Canada were up 11.7% month on month to 106,176 mt. The monthly increase could keep additional tons from coming in from the Kitimat smelter in British Columbia and supply the Southern US as market sources say that region has traded up to a 1.75 cents/lb premium to the Midwest on tight supply.

The US Trade Representative has not given any further guidance on quota amounts for 2021, keeping the Canadian supply of P1020 in the US tight and increasing upcharges on higher-purity metal such as P0610 and P0506.

Even with Canada shifting much of its primary aluminum production to value-added products, the market continues to run short as the US spot 6063 billet premium hit 22 cents/lb on April 15 and has remained there since.
Source: Platts