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US aluminum futures curve tightens as spot prices remain firm

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Market Data - Metales

US aluminum futures curve tightens as spot prices remain firm

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Spot prices hold record levels

Backwardations increase versuss Q4, Q1 2022

The CME Group's AUP Midwest aluminum premium futures held steady in the front part of the 2021 curve as the back part dipped slightly with some positions rolling from the fourth quarter into the first quarter of 2022.

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As the labor and scrap markets remain tight along with rising freight costs, increased demand came in for P1020 and aluminum slabs from mills unable to obtain monthly scrap requirements.

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.

"Freights [are] still going up," a trader said.

Platts US Midwest premium hit a record high of 27.40 cents/lb on June 7, and has held there since, backing out the 12.264 cents/lb import duty as of June 11, the US Midwest premium is still below 2015 levels when there were extended LME warehousing queues. Market sources said replacement costs are now pushing 30 cents/lb.

The June contract settled up 0.15 cent/lb on the week at 27.25 cents/lb on June 14.

The June/July spread eased slightly to a 1.10 cents/lb backwardation, as inventories continued to draw on steady demand and traders tried to restock, especially into Toledo, New York and Baltimore.

"Large consumers are no longer getting discounts," a second trader said.

"The West Coast is extremely tight and short on metal," a third 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.

Strong backwardation

The July/October spread moved in a stronger backwardation June 14, settling at 3.90 cents/lb. Some long positions have been rolled into second-half 2021 and Q1 2022 as fresh buying continued to come in across the curve. The Q3/Q4 spread tightened as well, settling at a 3.30 cents/lb backwardation, with Q3 trading from 24.80 cents/lb to 25 cents/lb, down slightly on the week and Q4 trading down to 21.90 cents/lb on the CME during the week ended June 14.

The Q4 strip gave up some of its recent gains, as positions rolled from Q4 to Q1 2022, with 960 lots trading in the spread from 2.35 cents/lb to 2.50 cents/lb backwardation. The spread was relatively unchanged on the week, as the market started to price in some relief in freight costs and increase in import flows.

  • Q1 2022 volumes were 480 lots during the week on CME Clearport.

  • AUP total volume was 1,873 lots, or 46,825 mt, for the week ended June 11. Open interest finished the week at 23,294 lots, up 604 lots from the June 4 close
  • The spot to six-months spread settled at a 5.50 cents/lb backwardation on June 14.
  • Cash/three-month spread on the LME settled at a $15.75/mt backwardation
  • Cash/December spread settled at a $13.50/mt backwardation
  • Net speculative long positioning on the LME contracted to 18% of open interest as of June 10 close; Marex

The spot-to-six months premium spread held its backwardation over the previous week and averaged 5.168 cents/lb during that time.

The last Commitment of Traders report by the Commodity Futures Trading Commission showed that as of the June 8 close, long positioning by swap dealers fell by 942 lots during the week to 12,439 lots, as spread activity decreased by three lots to 942 lots. The short positions by managed money decreased by 344 lots to 798 lots.

The US Commerce Department 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 Census Bureau April trade data showed that imports from Canada reached 140,088 mt, up 36.9% month on month but still down 12.98% from April 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 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 and has remained there since.