Supply-side challenges and sub-optimal demand for EU aluminum billet premiums discussed at London event

Supply-side pressures coupled with lackluster demand were the key topics of conversation for Europe's aluminum billet market at last week's industry event in London, as players contemplated the future of premiums that have so far held firm since the year's start.

Higher premium targets were heard by European sellers looking to exploit a tighter supply picture, as logistical issues remained preventing timely shipments from Asia whilst domestic primary producers were reportedly unable to cater to additional nearby demand. Meanwhile, a tight scrap market, coupled with strengthening ingot premiums, also helped maintain firmer offers from secondary billet producers facing higher price inputs.

Offers for the third quarter reached $600/mt DDP, and transaction levels not far behind, with early talks of Q4 negotiations also heard to be taking place at premiums above the previous quarter, and further climbs anticipated whilst such supply-side pressures sustain.

"We see a heavy push to level up premiums, but it's reasonable given the primary ingot and billet spread, it's pure math play," a producer said. "Some are interested in Q4 to discuss volumes, but are not pricing because they don't know the demand on the end user side"

Conversations dissecting demand dynamics suggested growing weakness in the automotive sector, stemming from troubles in the Electric Vehicle Market and a now reportedly diminished backlog that previously kept orders rolling in. Buyers and sellers collectively reported reducing volumes to adjust, whilst the continued strain of high interest rates further prevented any uplift in an already subdued building and construction sector.

"We are seeing a 30% reduction in demand on sites supplying the automotive sector," one producer said. "We have taken out 5% of production volumes because we are lacking scrap and don't want to pay the huge ingot premium," a second producer said.

"We had to reduce billet volumes by 10% because our demand was down across markets, but automotive is impacting us the most. I am not convinced that building and construction will be positive in the latter half of the year because interest rates need to go down at least 100 basis points to trigger any demand improvement" a buyer said.

A somewhat brighter demand landscape was painted by European suppliers, who found order books to have significantly improved this year amid restocking practices alongside a shift in risk-averse customers seeking domestic supply over imports. Demand complaints were still acknowledged, particularly centered in the German region, however many maintained that higher premiums had been offered and then accepted without much pushback. In addition, an Asia-based producer questioned the extent of the Red Sea Crisis in deterring flows, having increased VAP shipments to Europe by 20-25% for Q3 consumption, despite multi-week shipping delays still apparent.

Limited interest was heard for the low-carbon billet premiums, where continued emphasis was placed on the difficulty in passing down the additional cost and problems aligning the supply chain with their desire to opt for certification. Nonetheless, efforts to decarbonize kept central to discussions, and achieved upcharges as part of long-term contracts were heard in the ranges of $10-50/mt.

"Out of all our customers in Italy, only one is paying for low-carbon and small tonnages. Inquiries and bookings are not regular" a third producer shared.

Platts assessed the European aluminum 6060/6063 billet premium at London Metal Exchange cash plus $557.50/mt DDP Germany, stable on the day May 20, on net 30-day payment terms for prompt to 60-day delivery. The Italian premium assessment similarly remained flat at LME cash plus $557.50/mt DDP for net-60-day payment terms.

Platts is part of S&P Global Commodity Insights.