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Commodities Corner: Why some benchmark aluminum prices have soared to a record

Aluminum has seen prices more than double to records in the U.S. Midwest, climbing to a 13-year high on the London Metal Exchange, following disruptions to global supplies.

Those disruptions have been attributed, in part, to COVID-related slowdowns, high transportation costs, U.S. import restrictions and labor shortages.

U.S. Midwest delivered primary aluminum, as assessed by S&P Global Platts, is at an all-time high of 34.75 cents a pound, according to data provided by S&P Global Platts on Tuesday. The price is 20.05 cents a pound higher than in January, representing a more than 136% climb from the beginning of the year. It’s also more than 10 cents above the previous all-time high of 24.25 cents a pound seen in early 2015.

Issues unique to different regions, including logistical costs, can impact prices, so there are a number of pricing benchmarks to represent that. On the London Metal Exchange, the aluminum cash offer price was at $2,950 per metric ton on Sept. 13, the highest official price since July 2008, according to Dow Jones Market Data, citing CQG.

In the U.S. Section 232 tariffs have “done a lot to stop the flow of imports,” Christopher Davis, regional pricing director, metals — Americas, at S&P Global Platts, told MarketWatch.

Section 232 of the Trade Expansion Act of 1962 allows the U.S. president to impose restrictions on certain imports, if the Commerce Department determines that the product being imported into the country threatens to “impair the national security,” according to the Congressional Research Service.

The Trump administration in 2018 had applied 10% tariffs on certain aluminum imports, then expanded in 2020 the scope of products subject to the tariffs, with the moves tied to an effort to protect the domestic industry. U.S. tariffs on steel and aluminum under Section 232 currently affects $13.1 billion of U.S. annual imports, excluding exempted countries.

Global premiums have also made other regions more attractive to ship material, said Davis. So in the U.S., aluminum stocks have fallen to the point where domestic sources have about six months of aluminum supply, compared with the typical eight to 10 months on hand, he said.

The high cost of trucking and rail freight have also lifted premiums for aluminum, said Davis, pointing out that the average Midwest freights historically have been at about half a cent to a penny per pound out of Owensboro, Ky., but now stand at about 2.5 cents a pound. Freight options are also limited, as some traders say “they’ve been told they can expect up to a 30-day delay in some shipments due to lack of trucks, rail cars and drivers,” he said.

Elsewhere, there are also container shortages and vessel delays, along with supply chain disruptions that remain from the COVID-19 pandemic, Davis said. “Throw in labor concerns,” with both a lack of workers in general and a union strike at Rio Tinto Alcan’s Kitimat smelter in Canada in July, and “supply has tightened.”

Meanwhile, S&P Global Platts reported this week that there’s speculation over a possible production curb for smelters in China’s primary aluminum hub of Yunnan, the southwestern province in China.

“China’s smelters have been dealing with production cuts for some time due to power supply shortages, as well as individual provinces being tasked with meeting strict energy consumption targets,” said Davis. And there’s also political unrest in Guinea — the largest bauxite supplier to China, he said. Bauxite ore is used to aluminum.

All told, “it’s a lot for the market to absorb at once,” Davis said.

Looking ahead, some market sources have expressed concerns about aluminum supply for next year, any many don’t expect current pricing pressures easing, at least into the early part of 2022, said Davis. “There is still a lot of uncertainty regarding the future of the Section 232 tariffs as well, which carries some downside pricing risk if removed.”

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