Aluminum According to filings from earlier this week, Glencore only purchased about 1.1 million mt of aluminum per year from Rusal between 2020 and 2022, far less than the volume allowed under the current contract. In April 2020, Glencore signed an agreement to buy a total of 6.9 million mt, or approximately 1.6 million mt/year, from Rusal between 2021 and 2024. Last year, Glencore stated it will not make any new contracts for Russian metal but will meet current obligations. Earlier this week, Reuters suggested that the contract could be extended through 2025, or if ended early, could open the door to Rusal selling previously contracted metal Glencore’s rivals, namely Trafigura. (Source: Reuters) |
Due to subpar Chinese aluminum demand, Goldman Sachs has lowered its global aluminum supply deficit estimate for 2023 to 634,000 mt, down from their forecast of 997,000 mt. One bright spot for 2023 has been China’s growing solar sector, and Goldman Sachs expects that trend to continue into 2024. Globally, aluminum demand from green sectors will reach 5.5 million mt this year, up 40% year-over-over. According to Goldman’s estimates, approximately 60% of global aluminum demand growth over the coming years will come from green industries. (Source: Bloomberg)
Continuing with China, at 153,287 mt, Chinese imports of primary aluminum in August reached a new high for the year. This uptick came while global aluminum prices reached the lowest levels for 2023. Most of these imports could be going directly into domestic consumption, as Chinese primary aluminum inventories have been little changed since July. (Sources: China Customs, LME)
As for Indian aluminum demand, Hindalco Industries, India’s largest aluminum company, is bullish on the aluminum demand prospects. India’s aluminum demand is expected to jump to 9 million mt/year, up from 4.5 million mt currently. This is mainly due to the continued buildouts of numerous infrastructure projects nationwide. India is presently the world's second-largest aluminum producer and the third-largest consumer, Hindalco also stated. These comments were made at last week's Fastmarkets International Aluminium Conference. (Source: Reuters) India has recently become one of Russia's most important alumina suppliers. At 189,379 mt, India was the second largest supplier of alumina to Russia in the first of 2023. Due to supply constraints from the ongoing Russia-Ukraine conflict, Russia has had to seek out foreign alumina suppliers, mainly China. With Chinese aluminum production rising and other suppliers potentially holding back sales, Russia is seeking alternative alumina suppliers such as India. (Source: Shanghai Metal Market) Copper Copper demand remains lackluster for China’s consumer goods and construction industries. According to Henan Yuxing Copper Co., which makes components for air conditioners, “Consumption is lagging the previous few years due to the macroeconomic environment…. The whole industry is finding it very difficult.” Approximately 25% of China’s copper demand comes from the construction sector, while about 16% is from consumer goods, according to Citigroup. (Source: Bloomberg) Chinese research firm Antaike believes that copper demand could remain suppressed through 2024, they proclaimed at a conference earlier this week. This is mainly because demand from the energy transition remains slow, and the ongoing global manufacturing contraction continues to suppress demand. This “downward cycle” could persist through the second half of 2024 or even into 2025, they also stated. (Source: Bloomberg) Not every analyst is bearish on copper demand. By 2027, global refined copper demand could hit 29.8 million mt, according to Bloomberg estimates. Most of this demand growth will come from the transportation and power sectors. Meanwhile, mined production will only reach 24.4 million mt, leading to a deficit of 5.4 million mt. (Source: Bloomberg) Meanwhile, Codelco, Chile’s state-owned copper producer and one of China’s largest suppliers, is overhauling its contracts with major Chinese buyers. Currently, the contracts are for only copper concentrate, but after 2025, the contracts will “include concentrate and value-added intermediate products such as blister and anode which are derived from concentrate and can be turned into copper metal or cathode,” according to unnamed sources cited by Reuters. The unnamed sources also stated, "Some Chinese customers have protested against the changes but will have to accept new contract negotiations that include intermediates because they will need Codelco's concentrates at a time when deficits are expected.” (Source: Reuters) Finally, Lotte Energy Materials, a South Korean metals producer, will soon build a copper foil production in the US. Details are sparse, but according to Bloomberg, the plant would be built in Michigan, Kentucky, Georgia, or Tennessee. Production size is also unknown. This plant would supply the burgeoning EV battery market in the US and South Korea. (Source: Bloomberg) |
Steel Automaker Ford has averted a potential strike by Canadian workers, the company and the Unifor labor union announced on Tuesday. According to Argus, the potential strike would have affected two engine plants and an SUV plant and could have rippled into the US supply chain. Meanwhile, the ongoing UAW strike, which launched last week and has already affected supply and demand for American steel, expanded on Friday afternoon. (Source: Argus) More steel demand could be lost if the UAW strike expands. Earlier this week, UAW President Shawn Fain proclaimed that the autoworkers’ strike could expand on Friday if “serious” progress is not made. In 2Q2023, Ford, Stellantis, and Chevrolet sold a total of 552,800/month of cars. Using those figures, Argus estimates that 409,000 st/month of flat steel demand could be lost. An additional 138,200 st/month of other steel consumption could also be lost. (Source: Argus) US Steel has temporarily idled its 1.4 million st/yr furnace at Granite City, IL, due to the ongoing autoworkers strike. "Following the announcement of UAW strike actions, we are executing our risk mitigation plan to ensure our melt capacity is balanced with our order book,” US Steel stated. Depending on the duration, this strike could dramatically affect American steel production and prices for steel, aluminum, copper, and other metals. (Source: Argus) The recently launched autoworkers strike could also affect prices and demand for busheling scrap, a critical raw material for steelmaking. Prompt month CME Busheling Scrap prices have already fallen about 30% from the highs of mid to late March due to subpar steel demand. Meanwhile, steel mill margins are down over 50% since mid to late April, as HRC prices have fallen more than scrap. A further blow in end-user steel demand could further suppress steel mill margins and, in turn, pressure scrap prices. (Source: Argus) |
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Finally, Mercedes Benz has just signed an agreement with Steel Dynamics (SDI) for 50,000 st/yr of CO2-reduced steel to be supplied to its Tuscaloosa, Alabama, auto plant, according to a press release from Monday. This steel will be produced from 100% renewable electricity. SDI stated there are also plans to increase scrap content, which is currently 70%. These efforts are part of ongoing plans to reduce the carbon footprint of both companies. (Source: Bloomberg) |
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LME Aluminum |
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LME Aluminum 3M settled at $2,240.5/mt, up $50.5/mt on the week. Aluminum prices were up this week. This has caused the futures forward curve to shift vertically higher by approximately $50/mt. It remains in a steep contango, meaning nearby prices are lower than forward prices. Aluminum consumers concerned about increasing prices might consider hedging future needs by buying swaps or call options. Depending on risk tolerance, end-users might consider strategies that use only swaps or options or a combination of both. The aluminum market has sufficient liquidity to use swaps and options. Please get in touch with AEGIS for specific strategies that fit your operations. |
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Midwest Premium |
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Prompt month CME MWP last traded/settled at 20.0¢/lb this week. The CME Midwest Premium market is now in a slight contango from the October ‘23 contract on forward. The CME Midwest Premium swap market is thinly traded, with no options market. Hedging in this thinly traded market is challenging, so we recommend using limit orders. Please get in touch with AEGIS for specific strategies that fit your operations. * Please note all these charts are for desktop only. * |
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LME Copper |
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LME Copper 3M settled at $8,222/mt, down $183.5/mt on the week. Compared to last Friday, LME Copper's forward curve has fallen vertically by approximately $180/mt and remains in contango for the remainder of 2023 and throughout 2024 and 2025. The copper market has sufficient liquidity to use swaps and options. Depending upon their risk tolerance, consumers might consider strategies that use only swaps or options or a combination of both. Please get in touch with AEGIS for specific strategies that fit your operations.
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LME Nickel 3M settled at $19,418/mt, down $506/mt on the week. As prices were down this week, nickel’s forward curve has also shifted vertically lower by about $500/mt. It remains in a steep contango, meaning that nearby prices are lower than futures prices. The nickel market has sufficient liquidity to use swaps and options. Depending upon your risk tolerance, consumers might consider strategies that use only swaps or options or a combination of both. Please get in touch with AEGIS for specific strategies that fit your operations. |
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CME Hot Rolled Coil (HRC) Steel |
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Prompt month HRC Steel last traded/settled at $705/T, up $1/T on the week. The spread between CME HRC Steel and CME MW Busheling Scrap is generally used as a proxy for steel mill profitability. This spread currently sits at about $340/st, falling over 50% since the mid-April high of $731/st. Despite this significant drop, steel mills should consider hedging production and raw material usage for late 2023 and early 2024. For most steel producers, this would consist of buying CME MW Busheling Scrap swaps and selling CME HRC swaps. Options are available for CME HRC, but they are relatively illiquid. Please get in touch with AEGIS for specific strategies that fit your operations. |
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AEGIS Insights |
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09/20/2023: AEGIS Factor Matrices: Most important variables affecting metals prices 09/12/2023: Important US Economic Data (AEGIS Reference) 09/08/2023: Despite Price Slump, Hedging is Still Feasible for Steel Producers 08/25/2023: Growing Secondary Aluminum Supply Could Further Weigh on Prices 08/18/2023: Steel Buyers Can Strengthen Pricing Power During Industry Consolidation |
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Notable News |
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9/22/2023: Stellantis to invest $500 million in Rio plant 9/22/2023: Auto parts maker Marelli to discuss Italian plant closure with unions 9/22/2023: UAW strike set to hit deep into the industry's supply base 9/21/2023: Canada's Stelco Holdings is said to weigh bid for U.S. Steel, Bloomberg reports 9/20/2023: Canada union, Ford agree to tentative deal 9/20/2023: UAW official: Stellantis 'stockpiling' parts in Belvidere as strike continues 9/19/2023: UAW could expand auto strike on Friday 9/19/2023: Canadian autoworkers extend negotiations with Ford, delaying a possible strike 9/18/2023: US Steel idles Granite City mill on auto strike 9/18/2023: Rio Tinto shoulders Simandou iron ore bill as Chinese funds delayed - sources 9/18/2023: UPDATE 1-Glencore took low volumes of Rusal aluminium, contract could go to 2025 9/18/2023: Stellantis could close 18 facilities under UAW deal — here are the full details of its latest offer 9/17/2023: China's Aug aluminium imports rise on demand hopes, thin stock |