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US aluminum premium futures continue to rally for H1

Highlights

AUP total volume was 861 lots or 25,525 mt during the week ended April 16. Open interest finished the week at 23,761 lots on April 16, up 232 lots of the April 9 close

The spot to six-months spread settled at a 3.577 cents/lb backwardation on April 19

The cash/three-months spread on the LME settles at a $8.35/mt contango

The cash/December spread settled at a $23.25/mt contango

March sheet and plate shipments totaled 726.3 million lb, up 1.9% yoy; Aluminum Association

CME Group's AUP Midwest aluminum premium futures continued to rally through Q2 for the week ended April 19, as supply is still a concern in the near term along with high freight costs.

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

April settled at 22.776 cents/lb, up 0.802 cent/lb in the week ended April 19.

The May contract settled up 1.30 cents/lb on the week at 22.30 cents/lb.

The May/June spread tightened to a 0.50 cent/lb backwardation on April 19, as inventories have continued to draw on steady demand and traders look to restock.

"There is still the freight issue going into the Midwest," a consumer said.

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

The May/July spread tightened from 1.40 cents/lb to 2.40 cents/lb, as did June/July trading 1.90 cent/lb. Positions have been rolled from Q2 to Q3 as some light selling was seen in Q3 and Q4. The Q2/Q4 spread tightened as well, settling above 2.25 cents/lb backwardation, with the September/December spread trading at 0.75 cent/lb backwardation during the week.

"Some more metal starting to flow around Detroit and Toledo but freights are still high," the trader said.

The spot-to-six months premium spread held its backwardation over the previous week and has averaged 3.259 cents/lb during that time.

The last Commitment of Traders report by the Commodity Futures Trading Commission showed that as of the April 13 close, long positioning by swap dealers increased by 304 lots during the week to 13,323 lots, as spread activity decreased by 138 lots to 985 lots. The short positions by managed money increased by 35 lots at 1,111 lots.

The second-half 2021 strip saw some selling during the week, trading steady at 19.75 cents/lb. The H2 2021/H2 2022 spread held around a 2.25 cents/lb backwardation as the market starts to price in some relief in freight costs and the possibility of the reduction or removal of quotas on Canada.

"It doesn't seem like Canadian producers have extra metal to sell even if there is no quota," a second trader added.

US Census data for February showed P1020 or greater purity from Canada totaled 95,101 mt, down 7.82% year on year but up 42.92% from January. While total P1020 imports were down 30.57% from February 2020.

The US Trade Representative has not given any further guidance on quota amounts for 2021, keeping the Canadian supply of P1020 in the US very tight and increasing upcharges on higher purity metal such as P0610 and P0506.

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, as billet imports have been up 26.72% year on year through February.