It’s Turkey Time! Halloween is in the rearview and the fall classic is over (regrettably my Cleveland baseball team wasn’t in it). At least I have the Browns (heavy sarcasm) but in all seriousness, the weather has been off the charts nice this fall. As anticipated, annual deals for 2025 are slow to develop. Looking back a year ago today, I was on the home stretch of wrapping up annual contracts for the year. This time this year, I have but a handful of deals done and suspect much more of our industrial volumes will be conducted in the spot market next year.
All-in aluminum pricing will end October very closely to where it began the month, but the month was a tale of two halves. The light metal struggled to find footing early in the month, slipping ~$100/ton as the US Dollar gained on other foreign currencies thanks to some concerns that the labor market was slipping and speculation that the Fed may need to pause on dialing back interest rates. Remember, as the LME is dollar-based, spikes in the dollar generally weigh on aluminum pricing (as investors sell their LME position in favor of foreign currency based investments) while greenback dips tend to boost pricing for the inverse reasoning. Recent economic readings indicate the Fed is still on track to cut rates another quarter percent on November 7th. That coupled with a massive run up in alumina pricing has recouped that $100/ton in the LME and has propelled the Midwest premium up nearly 3c over the back half of October. Alumina is the raw material used to make primary aluminum and supply of that raw material has taken multiple hits throughout the year for a myriad of reasons. If you recall earlier this year, LME spiked due to a port explosion in Guinea (which supplies about 70% of China’s bauxite) and supply disruption concerns. While the disruption again is stemming from Guinea, this time its customs related suspensions of shipments that caused alumina prices on the Shanghai exchange to surge. Alumina represented ~15% of the cost of aluminum at the start of the year and today sits at about 25%, compressing margins of primary smelters around the world and helping to drive pricing higher. Global demand for aluminum is up 2% YTD (+6% China versus -4% Rest of World) while global aluminum production is up 3% YTD. Supply of bauxite however, is only up 2.1% over that same period which has led to the 84% increase in spot alumina pricing. With aluminum production outpacing demand short term and the fact that I feel this alumina fiasco will simmer down shortly, I don’t believe this wave of positive momentum will carry through end of November.
Despite the fall being a time when many consumers take planned outages for furnace relining and upgrades, there still isn’t a ton of scrap on the sidelines. You could argue things have leveled off recently in regards to the intense hunt for scrap units and I wouldn’t debate you. But I would point out that we are just about to head into the seasonal dip of industrial generation and peddler collection. And once lower interest rates take hold and start propelling the economy forward, demand will start to pick up and then things will get interesting…
Have a great Thanksgiving. Take some time to appreciate the great people, relationships, and experiences we get to enjoy and too often take for granted. If you need any pricing, have questions, or topics for this segment, please contact me at michael.anderson@schupan.com or 440-813-6325.
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