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Annual billet upcharges are still unclear, but demand is strong for 2018

September 19, 2017 (6:38 mins)



Recent Platts spot billet upcharges are being driven higher by strong extrusion demand and a handful of supply issues, which may continue into next year. Karen McBeth, director of metals pricing and market engagement, speaks with Sarah Baltic Hilliard, Americas aluminum products pricing specialist, about the trends to watch in the market, including whether Hurricanes Harvey and Irma could have longer-term effects on billet demand and what disruptions may be in store for the Quebec smelter ABI in light of union contract negotiations.


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Podcast Transcript


Sarah Baltic Hilliard: Welcome to the Commodities Spotlight podcast from S&P Global Platts. I'm Sarah Baltic Hilliard, a pricing specialist focusing on aluminum products in the Americas, and today we will be discussing recent trends in the US extrusion market.


I'm joined today by Karen McBeth, director of metals pricing and market engagement, and who is especially familiar with aluminum markets. The most recent Platts spot billet upcharge is up to 9-10.5 cents, and I know we've even heard some deals as high as 11 cents. Can you talk about what's driving that?


Karen McBeth: Extrusion demand has continued to be strong, coming off a good 2016, and we've seen a few issues with billet imports that have started to eat into that supply.


SBH:The Aluminum Association just reported that new orders for extruded products were up 10% in August compared to August last year, and up a whopping 24% from July, which goes along with what you were saying.


KM: Yes, this confirms what we were hearing in the market. Last month we heard lead times for some of the more custom architectural and fabrication markets were running out to almost 20 weeks. We're hearing more like 13 weeks on those now, and most other items 4-5 weeks, but that's still above the norm. Overall extrusion orders are up about 3% year to date and everyone reports being very busy, with most sectors doing well – automotive, building and construction, office furniture….


SBH: What would you say is the biggest factor driving the billet upcharge to rise? You mentioned those supply issues… I know we saw Alba have that power outage in April which cut 3-5% of its production. And then Vedanta with its potline outage, Hydro with Qatalum shipping issues…


KM: Billet imports have been surging in recent years, up around 25% for the US/Canada last year, and they are holding at that this year, so that supply is pretty critical to the market. Alba declared force majuere on some billet shipments but we understand it was able to work with customers so there were only minor delays, small cuts. Vedanta hasn't really penetrated the North America market yet so that also had only a minor affect. We also saw Hydro have to substitute some other origins for its Qatalum billet.


SBH: Right, and then we also just had multiple hurricanes tear through the southern US; did you hear any effects because of that?


KM: Yes we did hear of some minor delays of billet shipments from Rusal due to Hurricane Harvey. But probably the bigger issue which could affect supply this year is the ABI contract which expires in November. Some extruders were advised to shift their orders elsewhere, and we understand the partners (Alcoa and RTA) expect a worker slowdown so they were out in the market to cover themselves. But the union and extruders said they have seen only a minor effect so far.


SBH: Still, all of these things add up.


KM: Yeah exactly. We're also hearing of stronger billet demand in Europe, which affects supply coming here to the US.


SBH: I just wanted to touch back on the hurricanes quickly…curious if you have heard anything about possible longer-term effects on the extrusion market?


KM: Extruders and remelters are already seeing a lot of scrap being offered, and the discounts for 6063 new bare scrap have been wide anyway. Even before the hurricanes we were hearing 7-8.5 cents, compared with 3-5 cents last year. Extruders also expect increased demand for hurricane shutters which are made of extrusions, but this is a low-margin business so the orders may have a hard time being filled right now.


SBH: I guess it could take a few months to see how that play out. But it seems like it could mean going into next year that we could be facing a continued crunch on billet supply? Have you heard on pricing so far for next year?


KM: Although most remelters and primary producers are sold out, there is definitely a mixed bag reported on the annual billet upcharges. Some extruders and import producers are saying they see 2018 levels for 6063 billet down slightly, more like 9-10 cents or 10.5 cents compared with 9.5-11 cents for 2017. But some producers are looking for an increase. Demand is expected to remain pretty solid through next year anyway, maybe falling after that.


SBH: Yeah, there is also uncertainty involving the Section 232 case and possible restarts we have been hearing for next year, more than we can cover here today. But Karen will be speaking at the Aluminum Extruders Council conference later this week, and would be willing to send the presentation to you if you can't attend. Remember, you can find more news, analysis and price assessments in Metals Daily as well as on Platts.com. Thanks for listening.






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