Commodity markets are changing so rapidly that it can be difficult to step back and put current conditions into perspective. Participants are prone to a virtual boost due to volatile price movements, whether they are up or down – but especially when the markets are still on the roller coaster.
This is particularly evident now, with the impact of the coronavirus pandemic on global commodities and many have been reaching their lowest prices in years, if not decades. However, the benefits go beyond prices.
Take for example the aluminum market. Closures in the automotive and aerospace sectors dampened forecasts of aluminum demand for 2020. Domestic shipments of products from aluminum and foundry factories to the automotive and light truck sectors alone accounted for 6,242 million pounds in 2018, or about 25% of total demand for aluminum in the United States, according to the Aluminum Association.
A two-week minimum shutdown, as announced by several automakers last month, would amount to around 240 million pounds of lost deliveries – not a good start to the year for a market segment that should be stable at best in terms of sales 2020.
Some aluminum end users have also had to temporarily close facilities, as many states impose “non-essential business” closings.
Boost aluminum with quarantine supplies
One positive point has been the canned beverage sector, especially the liquor segment, as people move into extended quarantine. According to widely published data from Nielsen, sales of alcoholic beverages increased 55% year-over-year for the week ended March 21. about 90% over the year for the same period, according to the data.
All of this comes at a time when the US Midwest P1020 trading premium, which S&P Global Platts estimates, was 10.5 cents / pound on April 8. Midwest premium – down almost 33% from the start of 2018, to 74,978 cents / lb on April 8.
January 2018 was the last time the Midwest premium, reflecting market dynamics ranging from supply and demand to delivery and logistics costs to trade and labor issues, n was only 10.5 cents.
To put things in perspective, it was at this time that Trump’s White House revealing book “Fire and Fury” had just appeared, California became the largest US state to legalize cannabis for any purpose. Recreational and American political circles were rife with rumors of a possible presidential candidacy for Oprah Winfrey. .
Shortly after, the Trump administration imposed a 10% tariff on primary aluminum imports, as well as sanctions against Russian aluminum producer Rusal. These two factors helped push the Midwest premium to a multi-year high of 22.5 cents / pound in April 2018.
The US market has digested prices and other developments over time, ultimately reducing the premium to more typical historical levels. Today, Canada, Mexico and Australia are exempt from tariffs, while Argentina has quotas in place. Rusal is also no longer subject to sanctions. However, more than 27% of aluminum imported by the United States remains subject to tariffs, against a peak estimated at 86% at the beginning of last year.
It remains to be seen whether the Midwest premium will return to levels seen in the wake of import tariffs or whether it will continue to hover near historic lows.
What is certain is that commodity markets – including aluminum – will continue to respond to market forces, whether these forces come in traditional forms, such as supply and demand, or as viruses that grip the globe. And it’s not just a matter of perspective.