US spot premiums for aluminum extrusion billet climbed to a nearly three-year high in March as imports dwindled, ports were congested and construction activity has more than recovered to pre-pandemic levels.
The Argus 6063 billet upcharge has nearly doubled in 2021, increasing to 16-19¢/lb in the latest assessment from 7.5-10¢/lb in the first week of the year.
Traders desperate to fill contract positions or attempting to take new positions have even being going to other competitors to source metal.
While Section 232 tariffs do not apply directly to billet, the semi-finished product is sold at a premium to the P1020 Midwest transaction price. If the administration of US president Joe Biden removes the 10pc Section 232 tariff, the Midwest P1020 premium portion of the billet sales price could rapidly shrink.
Uncertainty over replacement costs and future metal value has kept traders from accumulating surplus stocks in response to higher demand, instead trading hand-to-mouth.
So far the only definitive move the Biden administration has made on aluminum trade issues was to undo a minor, last-minute exemption by the previous administration.
The US has always relied on imports of extrusion billet, but the need has grown over the past few decades as more and more primary aluminum smelters have shuttered, many of which made higher margin value-added products like billet.
The most recent closure was Alcoa's Intalco smelter in Washington, which fully curtailed its last potline in July 2020, leaving west coast extruders without a domestic billet maker west of the Rockies.
"Supply has evaporated," one sold-out producer told Argus.
Another factor keeping premiums higher is widespread congestion at ports, with some vessels waiting months to unload.
"Most ports in America are clogged up," a southeast extruder told Argus, noting that some Middle East smelters have declared force majeure over shipping issues.
Extruders planned for 2021 demand to be racked by more Covid-19-related disruptions, only contracting a portion of their needs on the expectation of being able to turn to the spot market. But extrusion is one area that has remained strong throughout the pandemic, outperforming most other aluminum end markets.
The seasonally adjusted annual rate of US construction spending was up by 6pc in January from a year earlier at a record high of $1.52bn in the latest data available from the US Census Bureau, meaning any lingering Covid-19-related construction weakness is likely now gone and building raw material demand is strong.
Aluminum extrusions are used in myriad applications, but window frame, door frame and architectural features are by the far most common use.
Tight labor markets and high costs for scrap and P1020 have also made it hard for secondary aluminum billet makers, which make up the vast majority of US supply, to keep pace with demand.
P1020 is necessary to raise the aluminum content in remelted extrusion scrap, but the persistence of Section 232 tariffs have kept inflows of primary metal slim and prices high. This has pushed cast houses to use as much scrap as possible and increased competition for recyclable material.
Argus buying spreads for new, bare 6063 extrusion scrap are around 10¢/lb under the P1020 Midwest transaction price, with outliers paying discounts as tight as 6¢/lb under. The closer the cost of scrap to new, P1020 aluminum, the slimmer the margins for remelters producing scrap-based billets for US extruders.
"[There is] not enough domestic remelt capacity. Demand is very strong," a second extruder said.
