Demand, specifically in the US, seems to be holding strong, especially for imports. Total P1020 aluminum imports from January through June soared by 41.6% to approximately 1.073 million mt, according to US Census Bureau data. However, some vulnerabilities are beginning to show. Market participants interviewed by S&P Global late last week proclaimed that US aluminum import demand could drop in the coming months as automotive demand is starting to show signs of weakness, and rising interest rates are weighing on the housing sector. Also, rising scrap flows are replacing some primary demand as well. Given that other regions (such as China) are seeing slowing demand, could aluminum prices continue the downtrend? Or, with the European supply crunch seeing no end in sight, could supply issues begin to prop up prices? |
Looking to hedge your aluminum needs and lock supply costs into 2022 and beyond? End-users might consider using the recent dip in prices by applying simple hedges involving swaps and call options. One other possible strategy is a costless collar. In this case, a “zero-cost collar” creates a maximum and minimum aluminum price for an end user, as they would simultaneously buy a call option (creating a cap, or maximum) and sell a put option (creating a floor, or minimum). The call and put premiums offset, making the construction costless. It is popular because of the upside price protection, but you sacrifice access to much lower prices if prices should fall. Such positions are standard for consumer hedging, but they can result in opportunity costs or cash costs if metal prices decrease. Please contact AEGIS for specific strategies that fit your operations. |
Important Disclosure: Indicative prices are provided for information purposes only and do not represent a commitment from AEGIS Hedging Solutions LLC ("Aegis") to assist any client to transact at those prices, or at any price, in the future. Aegis makes no guarantee to the accuracy or completeness of such information. Aegis and/or its trading principals do not offer a trading program to clients, nor do they propose guiding or directing a commodity interest account for any client based on any such trading program. Certain information in this presentation may constitute forward-looking statements, which can be identified by the use of forward-looking terminology such as "edge," "advantage," "opportunity," "believe," or other variations thereon or comparable terminology. Such statements are not guarantees of future performance or activities.