Not since World War II has North America been at the center of a metals manufacturing investment boom. Three new aluminum rolling mills are coming up out of the ground as testament to over $6 billion in new investments to secure domestic aluminum supply.
It has been over 80 years since the last metals manufacturing renaissance in the US. Aluminum domestic primary capacity has dwindled down to just a hand full of smelters. The US is short primary supply by 4 million tons in 2023, with the deficit increasing to over 5 million tons by 2027. Energy deregulation focused output on its more lucrative customers, both residential and service industry clients. US smelters closed and curtailed capacity, forcing US rolling mills to turn to foreign sources for primary metal and to tap into a mature US consumer economy where post-consumer secondary metal units are readily available. Secondary metals have evolved into a principle, strategic feedstock for rolling mills.
North American aluminum sheet demand had been rabid during the Covid-19 recovery period 2020–H1 2022 fueled by stay-at-home consumer beverage consumption, and the pent-up, latent demand for new cars that were held at bay by the semiconductor constraint. Both can sheet and auto body stock are poised for sustained growth. As electric vehicles (EVs) gain share of new auto purchases and millennial consumers continue to align their beverages of choice with sustainable packaging, these new investment projects will have sustained and reasonable return-on-investment (ROI) projections in the long term despite the inflationary headwinds stalling growth in H1 2023.
Bay Minette, by Novelis, will leverage the company’s long-standing supply chain role across critical end-use segments and a solid position in the secondary metals supply chain. This same secondary metals supply chain expertise is exactly the operating synergy Aluminum Dynamics Inc. (ADI) brings with it from its parent’s lineage: the Steel Dynamics – OmniSource model. Manna Capital is attacking the challenge from the other end of the value chain by establishing a strategic supply relationship with Ball Corp. for a long-term connection to forward can sales and has recently inked a deal with Metal X to establish a scrap and slab supply connection. Any trend towards friendshoring, strengthening domestic supply chains and de-risking import supply plans further emboldens this new capacity as the geopolitical picture looks as perilous ahead as it has in recent years.
As these new aluminum rolling mills begin to roll nearly 2 million tons of aluminum can, auto body, and general fabrication sheet coil, the demand for secondary feedstocks will rise in tandem. Sure, closed loop scrap return programs will accompany the sales of the new aluminum coil capacity, capturing perhaps as much as 20% of the clean, segregated class scraps. That leaves a conservative view that 1.6 million tons of additional scrap feedstock will be needed continuously throughout the operating years.
CRU and other industry experts will explore the strategic significance of the secondary metals value chain at The ISRI Conference and Exposition 2023 in Nashville from April 17-20.
Russian Metal in LME Warehouses Now Over 50% Off LME Stocks
The LME also released recently its latest country-of-origin stock report. The report was launched earlier this year and see three months of history clearly in view. The latest data for March shows that Russian aluminum held in LME-approved warehouses increased by a further 10% between February and March, and represents now 53% of total LME stocks, up from 46% last month.
The month-on-month (m/m) increase was much less than the one seen in February (+114%) and total Russian stocks now amount to 220,575 metric tons. The country with the second largest amount of stocks is India with 190,275 metric tons. There have been reports of Indian metal being delivered into Europe, which explains the drop. Moreover, we believe there might be further increases of Russian metal in the coming months. However, the smaller increase in March suggests the LME is not being overwhelmed with those deliveries.
The LME has not banned Russian metal from the exchange. This increased visibility in the country-of-origin report is linked to related to supporting various sanctions, tariffs and clients’ documentation requirements. Global primary inventories remain low, less than 1 million tons, in a 70-million-ton global market environment. The absence of a significant surplus, or deficit, keeps the market tightly balanced. Slack demand around the world has not yet challenged the supply chain for aluminum yet this year. A clear departure from the Covid-19 recovery buying frenzy in 2020–H1 2022, 2023 has found a benign LME. Currently trading just above $2,350, the price this time last year was $1000/metric ton higher. Similarly, the Midwest Premium is at $0.25/lb for nearby delivery when a year ago the premium had soared to nearly $0.40/lb as demand was supercharged in final months of the Covid-19 recovery and before inflation and bank distress came into clear view.
Learn more about CRU’s services at www.crugroup.com
By Stephen Williamson, CRU Research Manager, firstname.lastname@example.org
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I’ve had discussions with some of you lately about where and when sheet prices might bottom. Some of you say that hot-rolled (HR) coil prices won’t fall below $800 per short ton (st). Others tell me that bigger buyers aren’t interested unless they can get something that starts with a six. Obviously a lot depends on whether we're talking 50 tons or 50,000 tons. I've even gotten some guff about how the drop in US prices is happening only because we’re talking about it happening.
We’ve all heard a lot about mill “discipline” following a wave of consolidation over the last few years. That discipline is often evident when prices are rising, less so when they are falling. I remember hearing earlier this year that mills weren’t going to let hot-rolled (HR) coil prices fall below $1,000 per short ton (st). Then not below $900/st. Now, some of you tell me that HR prices in the mid/high-$800s are the “1-800 price” – widely available to regular spot buyers. So what comes next, and will mills “hold the line” in the $800s?