Washington — Increasing Australian aluminum imports to the US have created ample ingot supply, which market sources believe is causing wider discounts on P1020.
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"There is some Australian product coming in, I wouldn't say it's a massive volume, but we've definitely seen some uptick in that market," a port source said Wednesday, adding "it kind of seems like some shippers are getting their feet wet and testing the water."
The port source expected imports to tick up, "so [shippers] will be looking more and more into that lane."
The latest trade data from the US Census Bureau, accessed through Trade Data Monitor, showed that Australian imports of unwrought, unalloyed aluminum have been steadily rising. Australian imports grew from 1,996 mt in March to 7,781 mt in August. By comparison, imports from Canada, which equaled 197,579 mt in March, dropped to 66,437 mt in August.
August data also showed that Australian imports rose roughly 23% from July, while Canadian imports dropped by around 25% month on month.
In fact, Australia was the second largest source of unwrought, unalloyed aluminum in August after Canada. This is partly due to increases in Australian metal, but also a drop in exports from other countries: imports from Argentina fell from 9,671 mt in July to 3,724 mt in August, for example.
Sources said imports are rising because Australian metal is exempt from tariffs and not subject to a quota. However, most of it is ingot, and many US consumers prefer either t-bar or sow shapes due to storage concerns and melting considerations. A trader also said that there are safety issues with ingots, too.
"[Australian metal] is standard ingot shape. Historically, it wasn't imported into the US because of freight, but now [with no tariffs] it makes sense," a second trader said, adding, "so now there's all this standard ingot, but consumers can't use it ... it's got limited homes."
A consumer said that he was seeing more metal from Australia, noting, "it's not our favorite, but we have gotten used to it."
Ingot typically goes at discounts to t-bars and sows, with buyers and sellers recently reporting discounts ranging from 1-3 cents.
"There's lots of standard ingots out there, and discounts are growing," a second consumer said.
Sellers have also said they've had trouble moving ingots. "I tried to sell ingots at a 2-cent discount [to the Platts US Midwest transaction premium], but no one wants to buy it," a third trader said.
The first consumer was unsure if the discounts were because the metal was tariff free or because of its shape. "There is no tariff on it, so that's where the discount is coming from ... my perception is that ingot doesn't get a discount, but it doesn't handle as well, so I guess [it does]," he said.
Sources were in disagreement over how greater ingot availability would affect prices overall.
"The big question now is how much the discounts for ingots will muddy the waters for the market," the third trader said.
He thought that ingot discounts could put pressure on sellers to move material, particularly in times of backwardation on the London Metal Exchange. "Say I bought 500 mt of ingots ... for me to move those I have to give a big discount. I'll be losing money, and more importantly if I sell them to a customer while a supplier offers t-bars at Midwest less 1 cent, the supplier with t-bars is left hanging."
A fourth trader, however, said that ingot discounts should not affect prices, "You can't use ingot against a Platts premium. It's like off-grade [material]. P1020 sow is not as abundant as standard ingot."
"I think everyone is wanting and wishing for this magic honey hole where you can get metal and not pay the tariff, and that I guess is Australian units," a fifth trader said. However, he said that shape complicated matters. "There are disconnects. I don't see a clear path through which you can get metal you want here at the prices you want."
According to the second trader, the market was now "two-tiered," split between the two shapes, but would adjust.
"I think the adjustment needs to be made in the market itself. If there were no t-bar or sow, the aluminum industry would fall, so plants would make capital improvements to accept it," he said.
--Rebecca Grenham, firstname.lastname@example.org
--Edited by Pankti Mehta, email@example.com