CRU Aluminum: All Eyes on Auto Talks Ahead of Congressional Budget Battle

With the United Auto Workers (UAW) standup strikes just underway, and a Congressional budget deadline coming fast in two weeks, the ride ahead looms a bit dark and bumpy.

Premiums Drift Lower as European Demand Lags Still

This week marks the fifth week in a row that the Rotterdam aluminum premium is down by $5/t week over week (Wow). A gradual drop that shows the bearish sentiment continues to dominate as the industry starts to gather for 2024 contract negotiations. However, this also suggests that a bottom cannot be too far off given the need to compete with higher premiums in Asia.

The week is marked by a major conference in Barcelona, which usually kicks off the so-called mating season for 2024 businesses. So far, the feedback we hear is that sentiment is still bearish and visibility on demand is very low. We were told the weak demand has more to do with lower sales at semi-finished producers rather than the high level of stocks. Indeed, there is common feedback that order books at semis manufacturers are getting smaller. As for the destocking phase, stocks remain high at consumers, but this should cease towards year-end.

This could spur physical transactions very quickly if demand starts a recovery in 2024. However, views are still mixed about this as many do not foresee better demand before at least Q2’24. For this reason, we expect ingot premiums to continue this downward path, with the open Chinese import arbitrage likely to provide some sort of support in the short-term.

In the billet market, the latest feedback still suggests weak demand in extrusions, and it is unlikely the market will turnaround later this year. Despite being close to conversion cost levels, the all-in premium should continue to slip lower towards $400/t.    

US Midwest Premium Slips Below 20¢ Per Pound

The US Midwest premium fell below 20¢ per pound for the first time this year as the market continues to be slow. The futures curve was already sitting at similar levels and, going by the lack of market movement, it was not a surprise that the spot price converged. Demand is still slack, with perhaps a surprise shift even lower in extrusion shipments.

UAW Uses Standup Strike Leverage Against All Three US Auto OEMs

In an unprecedented move, the United Auto Workers (UAW) is striking at all three of the major US automakers simultaneously. Ford, General Motors (GM) and Stellantis each experienced a “stand up” strike at one facility at midnight.

The last UAW labor stoppage occurred in 2019 when 50,000 GM union workers walked out for 40 days. Today, it is estimated that there is a 50-day supply of new cars on North American showroom floors. A strike of any duration will have an immediate impact on the supply of new vehicles and replacement parts for repairs. The toll on the auto industry, still recovering from Covid-19 supply chain shortages, will be debilitating and is expected to zap the overall economy by an estimated $500 million per day.

For aluminum, auto applications had been one of the few demand bright spots in 2023. On track to sell more than 15 million new cars and light trucks in 2023, up from 13.7 million in 2022, North American consumer demand for new internal-combustion-engine (ICE) and electric-vehicle (EV) products remains unsatisfied despite higher interest rates and higher prices.

With little inventory, and given the pent-up consumer demand, the strike will cause an immediate contraction of the US economy and be felt directly by aluminum producers. Heat-treat sheet and plate shipments are up 13.2% year over over (YoY) through July and CRU’s forecast projects 11% YoY growth, of which 160 kt improvement for auto-body-sheet (ABS) applications. While some of the 2023 H1 ABS demand may have been pulled forward to build a cushion in the supply chain ahead of the Sept. 14 deadline, the mills welcomed the business as other end-use segments struggled to find any YoY gains. Now with the strike, the demand picture has lost the last of its optimism.