CRU Aluminum: Volatility Returns to Market

Now entering the second month of the year, prices are still a top-of-mind conversation. After its run-up to over $2,600/tonne, the London Metal Exchange calmed, and volatility dropped. This signals that, for now, it has hit resistance. The Midwest premium has followed a similar trend. After peaking just over $0.30/lb, it has started to come off just a bit, down a half cent this week. This adds weight to the theory that the Midwest retracement was due to a depressed December price correcting back up closer to replacement levels. The premium does tend to overshoot in tight markets, and this is evident in the softening in recent weeks and the backardation working its way into the CME futures curve.

Billet has proved to be perhaps the most dynamic market of 2023 so far. Late last year there were reports that more extruders than past averages were choosing to lean on the spot market to fill their metal needs. As of this week, many of the large billet producers are still reporting that a small but significant number of contracts remain open. Billet so far has the one value-added product affected the most by the recent slowdown, namely in extrusions. Another factor has been the increased competition from overseas producers as a high volume of billet came into the country from overseas, particularly from India and some Persian Gulf countries. As such, contract prices are being reported as up to $0.08 less than last year’s contracted price on the low end, with contract timing playing a large role on where each contract sits on the spectrum.