Declining US aluminium ingot supply to ratchet up need for imports to meet demand

US primary aluminium production will drop to 0.8Mt in 2016, down from 1.6Mt in 2015. The strong US dollar, relatively high power prices, and low metal prices are behind this major reduction in output. Ingot production will be the hardest hit, but the continuation of slab casting at Alcoa's Warrick plant will lessen the impact on slab. The large fall in US ingot supply will ratchet up the need for ingot imports to meet demand. Despite the best regional dynamics, billet and primary foundry alloy upcharges in the USA will not rise in Q2, as high netbacks (the margin a producer earns) — on low ocean freight rates — encourage higher exports to the USA.

Aluminium Ingot taking all the heat

In the USA, ingot demand will surge in H2 2016 as Alcoa halts primary production at its Warrick smelter but keeps the plant's slab casthouse operational with remelt ingot replacing liquid metal. At the same time, US ingot production will drop to 105,000t in 2016, down from over 500,000t in 2015. The sharp fall in production is due to the full closures of ingot producing smelters at Wenatchee and New Madrid and reduced ingot production elsewhere.

US spot billet premiums for 6063 material delivered Midwest at 11.5¢/lb are below the 2016 contract premium of 12.5¢/lb and will come under further pressure in Q2. Spot market activity in the USA has dried up and imports continue to rise, building on the 11.5 per cent y-o-y surge in 2015 to 790,000t for the full year. The implied German billet upcharge remains below this level and after accounting for the 4 per cent European import duty on billet, the US still remains the most attractive export market, for Russian and GCC producers.