Aluminum buyers seek US CPC price fall in line with Europe
US calcined petcoke prices came under further pressure in October, influenced by a sharp drop in Europe and slightly lower offers from Asia and South America.
Lower prices on green petcoke and Chinese anodes also played a role.
The Platts monthly US CPC price assessment fell to $250-$260/mt FOB US Gulf in October from $260-$275 in September. The assessment reflects the transactable, repeatable value of CPC with less than 3% sulfur , 300-400 ppm vanadium and typical metals , loading 30-60 days forward.
US bids and offers appeared to be influenced by lower deals on low-sulfur CPC in Europe, where both a smelter buyer and a refiner confirmed spot business around the $250-$265 CIF Rotterdam level, and another refiner reported booking Q4 contracts in the $260s CIF Rotterdam basis, down about $20 from Q3 prices.
An aluminum buyer agreed that "the $240s-$250s [FOB] for Q4 in Europe isn't crazy,” since he saw Europe long on CPC supply and competing with South American and US CPC. Smelters saw European refiners trying to protect their market by making imports less competitive.
One refiner source described "year-end inventory clearing” that might not affect Q4 prices, but two other refiner sources acknowledged that CPC supply outweighed demand, and potential aluminum smelter cuts were a factor.
"They [buyers] keep telling us they think there's plenty of calcined coke available, and it puts the pressure downwards on the price, and they're probably right,” a refiner source said, acknowledging there was also CPC stored in Europe .
A third smelter buyer said he knew a refinery had some excess to place, and also had an indication from a trader that spot CPC was available below $260 in Europe . He had yet to receive any Q4 offers and had no spot needs.
He said while another $30-$40 drop in Europe would be surprising, it was not unprecedented for European prices to fall to even with or below US prices, despite the quality differential, since refineries could not shut capacity in the same way merchant calciners could.
Other smelter buyers saw the $260s-$270s CIF Rotterdam as a realistic target for Q4. European Q3/H2 prices ranged from $270-$315 CIF Rotterdam basis.
The third buyer thought US prices needed to correct more than Europe 's; he heard $245 FOB US Gulf from a trader and thought the Q3 price of $265 was too high.
Another buyer was also offered spot CPC from the US Gulf in the mid $240s, and a fifth buyer had been offered $255-$260 FOB Gulf but thought Q4 contract prices should fall $30 from Q3 into the $240s FOB.
A fourth refiner saw $250-$260 FOB Gulf as the current tradable range for Q4, which he said would be down about $10-$15 from Q3.
But US calciners said opening offers for Q4 were in the same range as September pricing, around $260-$275.
Sources on both sides agreed there was a tendency by buyers to delay Q4 bookings while prices were falling.
After the Platts assessment on October 31, a Q4 deal was reported in the Platts range on an FOB Gulf basis.
One of the buyers said he expected his Q4 contract pricing to be below $250 FOB Gulf but he had not yet started talks. He paid $260 FOB for Q3.
The second buyer was targeting even lower, based on the arbitrage with Europe and a $10-$25 drop in green coke prices. "I wouldnt be surprised if we could get to the $230s before all is said and done in Q4," he said. "Just looking at what green coke price drops would allow, and the fact the LME [aluminium ] price is not looking good.”
A market observer thought some European refineries had "just reassessed the market” and priced as needed to retain the low-sulfur business. "They … really assess the LME price and see it's not coming back up,” he said.
"Price is the biggest factor for Europe ,” an aluminum buyer agreed. "In Europe , when the market is long, the adjustment is on price. In the US, it's on volume; they can shut down.”
The market observer thought the bigger impact from the European slide may be on South American CPC prices and trade flows. Recent offers and a Q4 booking were reported at $265 FOB Brazil , but a refiner said a $260 CFR price in Europe would mean $230 FOB South America , which "is impossible at this time.”
A trader also noted the current arbitrage with Chinese prices would enable Gulf calciners to take business away.
Chinese prices were also down in October, reported at $260-$270 FOB compared with $260-$280 in September.
Buyers reported a couple of Chinese 3%-3.5% S cargoes going to Australia in the low $260s FOB, and a less-than-3% S cargo sold at $265 FOB. Indian buyers paid around $260 FOB China or India but were now bidding in the $240s, sources said.
Most market sources were bearish on CPC prices, but with some caveats.
A trader noted that a "US price of $250-$260, below Chinese , can't be sustained for long.” He said with higher freights, "China is not as interesting a solution for Atlantic -basin smelters.”
The trader pointed to smelter restarts, but buyers cited the slow pace of ramp-ups and the potential for more smelter with operational reviews announced by Alcoa and Rio Tinto .
The weakness of the Chinese renmimbi against the US dollar was seen by some sources as continuing to put downward pressure on anode prices, which have an indirect effect on CPC pricing. One smelter buyer reported offer levels in a range of $475-$500/mt FOB China , while another buyer described $480/mt as a "good number." A trader also said all of the offers on Chinese anodes were below $500/mt.
IMO 2020 UNCERTAINTY
But some European refiners were looking at whether to divert some low-sulfur residue away from their cokers and, in turn, calcining, and sell it into the low-sulfur bunker fuel oil market where margins would be higher, several refiner sources said.
"It would make a difference on the edge [of supply],” in a market that could do with "taking some length out,” said one refiner.
While smelter buyers are unconcerned about the IMO 2020 effects, the refiners said the differentials in fuel-related pricing were being closely watched. "What we have seen is the feedstock of the low-sulfur residue we use to make the green coke in the coker has increased in pricing dramatically, and it's getting quite difficult to get hold of,” a refiner said. "People have been hoarding it.”
He acknowledged that with the aluminum price so low, even a supply shock on the carbon side might not make much difference right away. "But if the merchant calciners are forced to cut capacity on a combination of weak margins and not being able to get enough anode-grade green coke, then you will see a big supply shock and corresponding move in price,” he said, while not sounding confident of that happening.
GPC SOFTNESS CONTINUES
Calciners said that green coke prices had to continue falling to support CPC prices at current bid levels. There were mixed reports on GPC prices, with GPC from Argentina 's YPF reported to have sold at the equivalent of $110/wmt CFR Gulf or around $70 FOB, followed by a possible cargo to Asia equating to less than $70 FOB.
US low-sulfur (2.5%) GPC was reported in the $90s/dst FOB, or either side of $100 delivered calciners for Q4.
However, "a $100 CFR Gulf price, by the time you've accounted for handling costs, material loss, calcining, you need a $250 FOB CPC price to break even, and that doesn't really allow for financing costs,” a calciner said.
Buyers said Brazilian GPC, while better quality than the YPF material, should be priced around $100 FOB but was still offered at $130-$140/wmt FOB. The only European GPC on offer was some 2.9% S material from Eastern Europe that drew little interest.
The trader thought GPC and CPC prices might be reaching a floor. One of the calciner sources noted that talk of further smelter cuts was hypothetical, while smelter restarts were happening.