March proved to be a very busy month for aluminum. Midwest Transaction rose more than 6 cents in the month of green beer and busted brackets.
Speaking of green, that’s a heavily utilized word in the aluminum industry right now. Demand for green, super green, and low carbon material is dramatically changing the landscape of North America. I’ve written previously about the flat rolled recycling capacity growth with Aluminum Dynamics and Novelis, but we are seeing the same type explosion in the billet sector. Over the next 2 years, it’s expected that the billet capacity in the North America will grow by ~2.2 billion lbs.
Due to aluminum’s light weight and superior recyclability qualities (infinitely recyclable and only using 5% of the energy utilized to make new aluminum), it is the material of choice for many applications such as automotive light weighting, food and beverage packaging, and renewable energy. Demand for the metal continues to grow as does the mandate for full traceability across the supply chain and understanding its CO2 footprint. With customers and end users demanding it, the industry is ramping up to be able to meet the coming sustainability requirements. Even primary smelters are aiming to be lower-carbon, utilizing more renewable energies. Case in point, Century was just awarded $500 million from the Biden-Harris administration towards the construction of a new “green” smelter. This will be 1st primary smelter built in the US in 45 years and will be located in Northeast Kentucky.
This shift from overseas to domestically made aluminum not only means greener material, but also shorter lead times and most importantly, comes free from geopolitical risks. Domestically sourced material wouldn’t be impacted by events like the recent Francis Scott Key bridge collapse which is blocking the port of Baltimore. Any disruption to a major US port (Baltimore is the nation’s 11th busiest) would lend support to aluminum premiums, but to what degree seems up for debate. Some experts see another 6-7c in short term Midwest premium upside with the bottleneck in Baltimore but the counterargument is that these backlogs will merely be diverted to other US ports resulting in minimal short term supply disruptions. I personally tend to lean toward the latter philosophy although I do think there are other factors at play which are helping to bolster local market premiums. For that reason, I expect to see about 3c of additional premium upside in April.
The LME continues to be range bound (albeit on the upper end) but keep an eye on China - they saw their 1st manufacturing sector expansion in 6 months in March as recent economic stimulus measures start to take hold. Continued growth and appetite from China can reshuffle the deck in a hurry and push the LME higher. Scrap-wise, warmer weather traditionally means stronger flows and wider spreads. But with soft steel prices and the current uber-tight scrap market, I suspect any spread widening we see in April to be extremely slow.
If you are heading to ISRI National later this month and would like to connect, or if you have feedback or comments on this segment please hit me up at 440-813-6325 or michael.anderson@schupan.com.
