The start of 2018 has seen multiple bullish factors hit. In this podcast, S&P Global Platts metals editors Sarah Baltic Hilliard and Tina Allagh discuss causes behind the rise in US aluminum premium levels and outlook for the coming months.
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Aluminum Analysis: US sees a bullish start to 2018
With S&P Global Platts metals editors Sarah Baltic Hilliard and Tina Allagh
Sarah: Welcome to the latest Commodities Spotlight podcast from S&P Global Platts. I'm Sarah Baltic Hilliard, a pricing specialist focusing on aluminum products in the Americas, and today we will be discussing recent trends in the US aluminum market. I am joined today by Tina Allagh, senior managing editor and a vital part of the aluminum Americas team.
Tina, thanks for joining me. It's been an exciting start to the year so far in the aluminum sector. We saw premiums start the year at 9 cents and January is not even over yet but the most recent Platts assessment hit 11.5 cents yesterday. That is a huge hike in a short amount of time. What do you think are the top reasons for the increase?
Tina: Thank you, Sarah! It has been an exciting year so far! There have been a lot of factors at play that sources say are driving up premium levels. The big three everyone is talking about are freight/trucking availability, the uncertainty over the 232 investigation on aluminum imports, as well as the lock out at the ABI smelter.
Sarah: Yes, I am hearing a lot on the freight issue. The weather has definitely hindered trucking availability as well as caused some issues with the barges on the water. I have heard from consumers that they have lost some of their expected orders or needed to find material elsewhere in a rush.
Tina: Yeah, and traders are saying they are having a hard time finding trucks to move material or having to pay an arm and a leg in order to ensure their metal ships. Some trucks just don't even show up, and the seller will then have to get in the back of the queue. It has led to talks about replacement costs. Something that used to cost 2 cents to deliver is now costing people 3-4 cents.
Sarah: True. Sellers have mentioned their costs to secure metal have gone up. Part of that, too, has been that metal has stayed in strong hands. So even though we are hearing there is still plenty of metal around, sellers who have it aren't letting it go.
Tina: Well there has been a lot of speculation over the Section 232 investigation on imports and that has caused confusion and uncertainty. No one knows what to expect with this issue and what may come from the White House. Early Monday we heard that Commerce had delivered the results of its investigation to Trump but it's still a wait and see game.
Sarah: We are hearing a lot of rumors surrounding this right now as far and what Trump could recommend. We know that he has 90 days by law to decide on any action but people are saying they think the results will come earlier than that.
Tina: Also we are hearing that there may be country specific duties, or duties across the value chain, or even a quota-based system. But it's still hard to say at this point because we have no details.
Sarah: Another big news item this year is the lock out at the ABI smelter in Quebec, stemming from the inability of the two sides, the workers and the company, to come to a new labor agreement. What's the latest there?
Tina: Nothing this week. The workers were locked out 2 weeks ago, and ABI management is running the plant at 1/3 capacity. Some market players have speculated that management will continue to operate the plant at a reduced capacity for the rest of the year. Both a union source and ABI management said no new talks are scheduled. This should have most of an effect on billet.
Sarah: So all these issues have put immediate pressure on the market as sources have speculated about shifting supply/demand dynamics. And all of these issues have also caused forward financial trades to jump higher, with 2018 swaps as high as 13 cents recently.
Tina: Yeah! Open interest has really gone up recently and we have seen some hefty volume trades over the last couple weeks. On the CME yesterday, the Platts US Transaction premium financial swaps for March-July 12.5-13.25.
Sarah: It will be interesting to see how these issues continue to unfold.
Tina: Yes, definitely, but some of these issues should be resolved in the next few months. Until then, where premiums will go is anyone's guess.
Sarah: Alright, well we are out of time for today. Thanks, Tina, for the insight. And remember, you can find more news, analysis and price assessments in Metals Daily as well as on Platts.com. Thanks for listening.