CRU Aluminum: Aluminum Prices Run Up as Volatility Returns

Written by Stephen Williamson

The London Metal Exchnage aluminium three-month price was moving up again this week, and peaked near $2,650 per tonne– its highest level since June 13, 2022, but late week trading saw a $100 correction. Still $200-300 higher than on the close of 2022, we can only assume a return to volatility following a 2022 Q4 in the doldrums.


The price continued to increase amid hopes that inflation has peaked in Western economies, and central banks can look at reducing the pace of their interest rate hikes. The United Kingdom annual inflation rate slowed slightly in December, although it remains elevated at 10.5%. In the European Union it dropped to 9.2% from 10.1% in November. Overnight, the Bank of Japan surprised markets by keeping interest rates unchanged. The US economy has posted six straight months of declining inflation rates. The December 2022 inflation rate was just under 6.5%, lower than it was in January 2022.

The regional premiums also support the price run on the LME. The late December Midwest Premium values were trading below $0.20/lb., while the current MWP value is well north of $0.25/lb. Quotes for 2023 Q2 are approaching $0.285/lb. on a wave of  optimism that is in the wind, despite the absence of a corresponding wave of physical demand. The effect of higher LME values flows through to MWP via section 232 duties (10% or $0.02 – 0.04 per lb) and are a central part of the MWP formula.

Meanwhile, the other regional premiums have also rallied off the year-end floor. In China, the Shanghai Exchange (SHFE) is RMB 18,735 – 18,945 ($2,762 – $2,793). The Rotterdam exchange is trading at $290/mt late this week, off the year-end floor of $200/mt, and will likely settle near $250/mt for a 2023 Q1 average. Again, this is the optimism returning to the market before physical demand recovers. China is just stepping out of Covid 19 lockdowns, with consumer spending recovery expected through 2023 Q2. In Europe, a mild winter, thus far, has helped manage energy prices, but the war in Ukraine continues to upset any recovery of consumer demand under the pall of war.

US Inflation Report Also Boosts A Wary Equities Market

As in the aluminum market, US equity markets traded broadly higher this week after market participants received some positive inflation news. The consumer-price index (CPI) for December showed its first monthly decline since the pandemic began in 2020.

While the monthly CPI declined 0.1% in December, the annual gauge fell for the sixth month in a row to 6.5% from 7.1%. That is the lowest level in more than a year, and is down from the 40-year peak of 9.1% in June. However, although significant, the monthly drop might not be large enough to prompt the Federal Reserve to reconsider more interest-rate hikes, and many investors have perhaps positioned for inflation to fall even more aggressively. Hence, there has been a rather muted reaction in financial markets. Indeed, US stocks finished with modest gains on Thursday, with the S&P 500 up 0.3%, the Dow Jones up 0.6%, and the Nasdaq up 0.6%.

Conversely, the Purchasing Manager Index (PMI) has not improved. The PMI slipped below 50 in 2022 Q4, the lowest point since February of 2016 notwithstanding the slump associated with the pandemic. At the same metal service centers were purging inventories, destocking, throughout 2022 Q4. Both PMI and distributor demand are barometers for near-by demand which has yet to make a robust return in January mtd.

Nevertheless, LME aluminium got a good lift from the report and gains persisting thus far in 2023.

New Year, New Prices

Higher flat rolled products conversion deals are shipping in 2023. Even though metal was available in December, at the 2022 price levels, consumers and distributors preserved lower year-end working capital and were willing to buy-in in January at new, higher price points for sheet and plate. Lead times have moved into mid- February and March. With some lingering concerns for 2023 Q1 demand, continuous cast mills have booked their 3105-contract business and nearby sales are assessed 5 – 8% higher as labour and energy costs are recognized. Domestic building products demand and coating line time remain in demand. Watchful eyes will monitor bare imported building products sheet as North America remains the lone attractive market with soft demand otherwise around the world.

Domestic Direct Chill (DC) mills held their price discipline in 2022 Q4 as demand weakened. This sets the table for the 3003 and 5052 conversion fees to settle 3-5% higher in 2023. Some gauge, width and quantity combinations may find price extras atop the new price points. Heat treat plate remains on allocation. With limited domestic supply, the domestic 6061 plate mills have moved prices higher to start the year. Again, the risk of import supply returns as global demand is weak and NA demand is still beating. Import plate may have limited applications depending on end use and origin of material requirements, but still presents a price and product alternative in the market given tight domestic supply.

By Stephen Williamson, CRU Research Manager, stephen.williamson@crugroup.com

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