US aluminum futures continue making record highs on supply and logistics concerns

CME Group’s AUP Midwest aluminum premium futures forward curve continue to rally to record highs on Aug. 9 as imports continue to decline and logistics are still challenging.

Backwardations have tightened further down the curve on ongoing supply concerns and the Unifor Union strike at Rio Tinto’s BC Works smelter in British Columbia. Rio Tinto announced July 26 that it would cut production at the smelter by around 35% of the smelter’s 432,000 mt annual capacity. BC Works produced 329,000 mt of aluminum last year.

“Supply chain remains a mess,” a producer said.

The labor and scrap markets remained tight. Rising freight costs and increased demand for P1020 and aluminum slabs from mills, unable to obtain monthly scrap requirements, have supported premiums.

The strike by Canadian border guards is also adding to delays and could affect transportation, market sources added.

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

The premium reached a record high of 34.50 cents/lb on Aug. 6, backing out the 13.439 cents/lb import duty, it is still below 2015 levels when there were extended LME warehousing queues. Market sources said replacement costs could be pushing just above 35 cents/lb.

Supply remains tight and freight high

The August/September spread tightened slightly during the week trading around 1 cent/lb before settling at a 0.909 cent/lb backwardation on August 6, as September traded up to 33.50 cents/lb, as did the September/October spread and as inventories continued to be drawn on steady demand and traders try to restock, especially into Baltimore and the Gulf.

The August/October spread tightened as spot bid/offers and transactions continued to rise, settling at a 1.476cents/lb backwardation. Some rolling of positions continued, especially September to October as fresh buying into those months and in Q1 2022 as open interest continued to rise.

The Q4/Q1 22 spread tightened in the week ended Aug. 9, trading around a 3.25 cents/lb backwardation, as the Q1 2022 strip traded 29.25 cents/lb verse H2 2022 at a 3 cents/lb backwardation.

The 2022 contracts saw more activity week on week, as fresh buying came in the market, with Q2 2022 trading 28.25 cents/lb then back to 27.25 cents/lb. Buying has come in through banks from consumers.

“September through December remains well offered in AUP,” a trader said.

With the backwardations holding out farther, market participants can still actively sell the front-month contracts and buy forward dated strips in 2021 to capture some of the backwardations and restock inventories.

• AUP total volume for the week ended Aug. 6 was 1,216 lots or 30,400 mt. Open interest finished the week at 20,649 lots, up 44 lots from the July contract expiration which lost 2,654 lots.
• Spot/six-month premium spread settled at 5.25 cents/lb backwardation on Aug. 9
• Cash/three-month spread on the LME settled at a $9.23/mt contango
• Cash/December 2021 spread settled at a $10.73/mt contango
• Net speculative long positioning on the LME dipped slightly to 10% of OI as of the July 29 close: Marex

The spot-to-six months premium spread held its backwardation over the previous week and averaged 5.249 cents/lb during that time.

The last Commitment of Traders report by the US Commodity Futures Trading Commission showed that as of Aug. 3 close, long positioning by swap dealers decreased by 968 lots during the week to 11,718 lots with spread activity up 53 lots to 548 lots. The short positions by managed money decreased by 142 lots to 614 lots.

June imports of P1020 or greater purity from Canada totaled 122,686 mt, up 13.9% month on month, according to US Census data released on Aug. 5. The 2021 monthly running average through June is now 106,385 mt.

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.

Traders have been cautious on imports from Canada where they are the importer, market sources said.

Even with Canada shifting much of its primary aluminum production to value-added products, the market continues to run short. The announcement from Russia on an export tax has supported premiums globally. The US spot 6063 billet premium, which hit 26 cents/lb on July 22 and has held that level, with sales heard around the 30 cents/lb level.
Source: Platts