An article last week from Reuters reports US aluminum imports surged in March to 264,100 tons, the highest since August of last year, up 11% from February and 14% higher than March 2013.
The sharp rise in physical delivery premiums in January has undoubtedly had an impact, but physical delivery premiums have been rising everywhere in the first quarter so this may not be the whole story. Interestingly, inflows from Russia, the home of UC Rusal, the world’s largest primary producer, were particularly dramatic, partially reversing a years-long decline.
Over 44,000 metric tons arrived in March, more than double March 2013 levels and up 52% from February. The total exceeded long-term monthly averages and was almost three times the monthly average of 16,000 tons last year, Reuters reported. With the Midwest premium at 20c/lb, it is not unreasonable to expect that strong delivery premiums have played a large part, but it should not be overlooked that UC Rusal is a declared backer of the new CME aluminum contract and it’s possible the firm may also have been positioning metal to create liquidity.
Most see the strong rise in imports as evidence the US market is in deficit following closures by Alcoa and others, and the failure of the Hannibal smelter late last year. Certainly the surge in imports would support this and the strong physical delivery premiums since January add further weight to this argument.
Still, other developments, particularly reductions in LME inventory in the US, show a repositioning of aluminum from higher-cost LME warehouses to lower-rent off-warrant warehouses as banks, hedge funds and financial institutions involved in the stock and finance game look to lower their costs and maximize returns.
North American LME warehouse inventory fell from 1.9 million tons in January to 1.7 million tons by the end of the quarter.
Figures for April imports are not out yet, but are eagerly awaited to see if the trend has continued; if Q2 continues as Q1 finished it would add weight to the tight market theory. If imports tail off back to last year’s levels, it would suggest the surge may have had more to do with positioning for the new CME contract. Either way it shows changes are happening in the aluminum market – and that’s not a bad thing.
by Stuart Burns