American Metal Market - 03.10.14

Billet prices gain on pent-up optimism 

CHICAGO — Aluminum billet upcharges have increased on expectations of stronger demand in the spring and summer months, supply constraints and a continued tight scrap market, according to market sources.

AMM’s spot Midwest 6063 extrusion billet upcharges have risen to 13 to 13.5 cents per pound from 12 to 13 cents previously.

Market sources expressed optimism about sectors as diverse as building and ground and marine transportation, predicting that metal could become tight if strong demand persists into the second half of the year as anticipated.

Several market sources said they were banking on improved demand from the construction sector, especially in the Midwest and Northeast, where cold weather has hampered activity to date.

“Things are picking up. We’re seeing that typical seasonality, and the spring is normally a busier time,” one producer said, echoing sentiment expressed by other market participants.

“Billet is the strongest part of the aluminum business right now,” one trader said. “I can’t pinpoint exactly why. Truck trailer is strong. Maybe building is finally going to boom. But whatever it is, some customers are ordering double what they did last year.”

A second producer source said his company noticed an uptick in truck trailer demand, which he said might be due to aging fleets being retired and replaced more quickly than anticipated after a bruising winter. But others cautioned that it was too soon to celebrate pent-up demand in any market.

“There is a great deal of optimism that once things get warmer, demand will get better,” a third producer source said. “It’s tough to break ground when it’s frozen, but frozen is better than mush—and we’re in for a lot of mush.”

Other sources also questioned whether the thaw might bring clarity to order patterns scrambled by winter-related production and logistical problems for producers and consumers across much of the United States and Canada. Supply chains might have been distorted as production problems at one company increased orders at another, which means those who saw brisk activity early in the year might see demand slip as temperatures rise, they said. In addition, a high Midwest premium at the outset of 2014 could result in imports arriving just as domestic production returns to normal levels, they warned.

But the first producer said that whatever demand might be, his company—like many others—has little choice but to increase prices, given a tight scrap market, volatile Midwest premium and low aluminum prices.

“Guys are being hurt by the spreads, and at some point they’re just going to have to say, ‘Sorry, this is the price,’” he said. “You, of course, want to benchmark (against exchange prices and/or indexes), but at the end of the day you have to cover your costs."