US aluminum futures steady as demand remains firm

CME Group's AUP Midwest aluminum premium futures little changed during the week ended May 24, as demand remains firm and freights costs continue to rise especially in securely truck.

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

Some signs of supply relief are starting to come to fruition, as the market is starting to feel like the Biden administration will keep a steadier hand when it comes to trade policy than the Trump administration. The labor and scrap markets remain tight, increased demand for P1020 and aluminum slabs came from mills unable to obtain scrap requirements for May.

"Seems like more supply is starting to make its way over especially from Australia," a consumer said.

Platts US Midwest premium hit a record high of 26.85 cents/lb on May 20 and has held there since. Backing out the 11.855 cents/lb import duty as of May 21, the US Midwest premium is still below 2015 levels, when there were extended LME warehousing queues. Market sources have said replacement costs are now pushing 30 cents/lb.

The May contract settled up 0.19 cent/lb week on week to 26.50 cents/lb on May 24.

The May/June spread loosened slightly to a 0.80 cent/lb backwardation, as inventories have continued to draw on steady demand and traders continued to restock, especially into Toledo, New York and Baltimore.

"Truck freight continues to climb but demand remains firm," a trader said.

With the backwardation holding further out, market participants are still actively selling the front-month contracts and buying further dated strips in 2021 to capture some of the backwardations and restock inventories.

The June/July spread tighten with the increasing activity bidding up the June contract, settling at 3.95 cents/lb backwardation, as July/October spread loosened significantly settling at flat on May 24. Some long positions have been rolled into Q3 and Q4 as fresh buying has come in across the curve. The Q3/Q4 spread loosened as well, settling just under a 0.70 cent/lb backwardation.

The June contracted traded 760 lots during the week ended May 24.

The Q4 strip held it's recent gains from the previous weeks trading around 21 cents/lb, as continued activity in 2022 was seen at slightly higher levels. Fresh buying came into the market with the Q4 2022 trading 17.40 cents/lb on May 19. The Q4 2021/Q1 2022 held around a 3 cents/lb backwardation, as the market started to price in some relief in freight costs and some increase in import flows.

The spot-to-six months premium spread held its backwardation over the previous week and has averaged 4.563 cents/lb during that time.

The last Commitment of Traders report by the Commodity Futures Trading Commission showed that as of the May 18 close, long positioning by swap dealers increased by 28 lots during the week to 12,701 lots, as spread activity increased by 28 lots to 926 lots. The short positions by managed money increased by 10 lots to 1,008 lots.

The US Commerce Department published has officially set a June 28 start date for the proposed Aluminum Import Monitoring and Analysis system and clarified certain licensing requirements for the program.

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.

The April imports data from the US Census is set to release on June 8.

Even with Canada shifting much of its primary aluminum production to value-added products, the market continues to run short as the US spot 6063 billet premium hit 22 cents/lb on April 15 and has remained there since.