COMMODITIES 2025: European aluminum billet market faces supply risks and demand pressures

European aluminum billet market participants are entering 2025 with a cautious outlook, with demand staying sluggish amid conservative buying practices, while production cuts could leave the supply chain vulnerable to volatility.

Platts, part of S&P Global Commodity Insights, assessed the European aluminum 6060/6063 billet premium at London Metal Exchange cash plus $555/mt DDP Germany Jan. 10, on net 30-day payment terms, up 46% on the year, but reflecting a 12% decline from 2024's peak of $630/mt DDP in late August amid softer demand.

The Italian premium was assessed at LME cash plus $555/mt DDP on Jan. 10, for net 60-day payment terms, climbing 48% year on year but similarly declining 11% from a 2024 peak of $625/mt DDP in July.

Supply constraints and production challenges

European secondary aluminum producers are slashing billet production amid high input scrap and ingot costs. Producers have also discussed further cuts, which could help uphold premiums in the near term, according to sources.

"There are always conversations on cutting capacity," a producer said. "When you look at scrap, energy and primary aluminum costs, they are not workable for a remelter."

Platts assessed the European P1020 aluminum premiums over LME cash at $350-$380/mt Duty Paid In-Warehouse Rotterdam on Jan. 10, up 51% on the year.

"We are forecasting possible tightness in February," a second producer said, noting a number of producers had extended production stoppages in late 2024 for the festive break. "We don't need booming demand to create tightness."

The same producer said that a minimum billet premium of $570/mt DDP Italy with 60 days payment terms was required to close a deal, as anything below would result in losses.

Shrinking production margins have prompted flexible producers to turn towards more profitable products.

"We have put a limit on our [billet] sales, as we enjoy the flexibility of switching between products. Although demand doesn't seem good, I don't expect a collapse in billet premiums," a third producer said.

In addition, European supply may see even more reduction as some traders scale back imports due to prohibitive financing costs and extended transit times caused by ongoing disruptions in the Red Sea stemming from Houthi attacks on vessels that began in October 2023.

"You need at least $600/mt DDP [with 60 days payment terms] to replace metal here from the Middle East," a trader said. "Financing costs are very high, with material taking 78 days to arrive to Italy. We have reduced imports as it makes no sense financing two months extra."

"Traders will not take the risk of carrying inventories for too long with these financing costs, and will only import units that have been booked," another seller said.

An Asia-based producer said that they were shipping into Europe on long-term contracts, but would refrain from spot deals as current premiums do not incentivize the shipment.

Market participants are also eyeing the impact of a new non-preferential tariff quota on slabs and billets of unwrought aluminum alloys introduced by the European Commission in December, to the sum of 573,000 mt, effective Jan. 1, 2025. Imported volumes up to this total -- from non-preferential tariff countries -- will be subject to the existing 4% duty, with anything above now facing a 6% charge. The duty for Russia and Belarus remains at 6%.

Initial reaction from sources suggests minimal impact, with a large share of imports arriving from duty-free origins, such as Iceland and Norway, and the majority of other volumes entering Europe falling within the quota and remaining subject to the 4% duty.

Buying behavior switches to spot

Despite steadily lower production, buyers appear unconcerned about billet availability, opting to keep stocks lean to avoid overbooking in the face of reduced demand visibility. Several have increased reliance on the spot market and turned to monthly bookings, away from traditional quarterly contracts since the latter half of 2024. This is expected to continue in 2025 as long as demand remains under pressure.

While a shift to spot purchasing gives buyers more flexibility, this may also expose the market to sudden changes in supply and demand, sources said.

"There is a lot of metal in local regional warehouses, and customers are not booking because they see safety of supply," a fourth producer said. "But when they see premiums going up, they will start booking, and it will be on a first-come first-served basis."

Weak demand is set to remain a defining challenge for the European aluminum billet market. The struggling building and construction sector, a key consumer of billets, shows little sign of recovery, with market participants suggesting this may prevent any significant upward movement in premiums, despite supply-side challenges.

The latest HCOB Eurozone construction PMI(opens in a new tab) survey data, compiled by S&P Global on Jan. 7, showed that construction companies remain pessimistic regarding 2025 activity. French and German firms held negative outlooks during the December 2024 survey period, despite sentiment on order intake and future activity improving compared to November, while growth expectations in the Italian construction sector softened further.

Delivery postponements from 2024 are further reducing the need for new bookings, as buyers work through existing stockpiles, before placing new orders.

"We postponed 15-20% of volumes from Q4 into next year, due to deteriorating demand," a consumer said.

A second consumer offered a glimmer of hope, forecasting demand to increase by 3-5% during 2025, but noted that should demand increase sharply, there will be concerns about billet availability following recent production cuts.