CRU: Crunch Time Looms for US Aluminium Billet Market

Current billet netbacks into the US (profit on sale of billet into the US over sale of ingot into the US) are significantly higher than in 2017, as a lack of available metal has decoupled prices from production costs, according to CRU's improved cost analysis.

For 2019 billet contract negotiations, annual contract premiums could rise by 50% y/y. This price would be a reflection of scarcity but a break away from any cost basis and the subsequent surge in billet profitability.

CRU's improved casthouse cost estimates now includes more comprehensive analysis of remelt billet production costs and show that secondary billet production is higher cost than primary production due to higher energy costs and melt loss. For buyers and sellers alike this gives an important measure of supplier or competitor cost base.

For this study CRU has considered conditions in the second half of 2018 with US 232 duties in place, MW premiums at 22¢/lb and billet upcharges at 18¢/lb. The billet upcharge has surged higher as the outage at Becancour (ABI) a large billet producer continues, and UC Rusal shipments have been disrupted by US sanctions. Section 232 tariffs are in place and are affecting imports of metal, forcing premiums higher. Imports represent just under 30% of US billet supply.

Australia and Argentina are exempt from these tariffs and as such billet exports to the US become more attractive as they can benefit from higher premiums without paying duties. Currently these countries export small amounts of billets to the US. US smelters and remelters receive a significant boost to their billet netbacks as they don't face a duty on the billet upcharge. However, US smelters and remelters suffer high conversion costs and as a result billet netback remain lower than other regions. However, these netbacks are still historically high: i.e. when premiums surged in 2014 US producers achieved netbacks less than half of those currently seen.

Read the full story: https://www.crugroup.com/knowledge-and-insights/insights/2018/crunch-time-looms-for-us-aluminium-billet-market/ 

Read more about CRU: http://bit.ly/About_CRU 

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CRU offers unrivalled business intelligence on the global metals, mining and fertilizer industries through market analysis, price assessments, consultancy and events.

Since our foundation by Robert Perlman in 1969, we have consistently invested in primary research and robust methodologies, and developed expert teams in key locations worldwide, including in hard-to-reach markets such as China.

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