US ALUMINUM SERIES: Market eyes 2024 for demand rebound (2024)

Highlights

Consumers inquiring for Q2-Q4 supply

Futures pricing spurs some optimism

Market taking cautious approach to inventory

This report is part of a series on impactful trends in the US aluminum market based on S&P Global Commodity Insights pricing, news and analytics.

Read the first story in the series: Low-carbon demand in focus as green premiums find footing

Read the second story in the series: Post-consumer scrap taking larger role in supply for green demand

Coming off a year of lackluster demand and persistent uncertainty, US aluminum market participants are eying a rebound in 2024. Many expect to see higher premiums, believing the market has bottomed out over the near term, and are already hearing inquiries for tonnage in Q2-Q4, spurring some optimism.

A consumer said they paid 18.80 cents/lb for January and was offered at 21 cents/lb for Q2 and 22 cents/lb for Q3-Q4, while a second consumer said he asked for quotes from two brokers and received premiums in the range of 19-20 cents/lb for February and March.

The higher quotes stemmed from the CME's AUP contract trading at 19.75 cents/lb to more than 22 cents/lb this year.

The early year trend has so far mirrored S&P Global Market Intelligence's outlook for a slow start to 2024. In a Jan. 8 pricing analysis, S&P Global said that while global aluminum demand faces headwinds through Q1 2024 as restocking demand wanes, LME aluminum prices overall have limited downside price risk in 2024. LME prices averaged just above $2,250/mt in 2023 and held near the global cost of production.

"There is limited financial incentive to increase primary production through the first half of 2024," S&P Global said. "We maintain our view that aluminum producers will reduce production through the first quarter of 2024."

The US Aluminum Association's latest preliminary estimates show demand for the aluminum industry in North America (US and Canada) declined 4.4% through the first three quarters of 2023, but CEO Charles Johnson noted, "aluminum demand remains near the 10-year average during a time of increased investment for the US industry" and said that "the long-term outlook for aluminum remains strong."

Consumers cautious of inventory levels

Despite consumers dabbling in the spot market, they continue to be mindful of their inventory levels. Consumers and traders said tonnage slated for Q4 2023 had been pushed into Q1 2024 and even Q2 2024 as demand waned.

A trader said premiums "are looking stronger," and has been getting more calls for scrap and off-grade material. "Consumers have been working down excess inventory, so they're in better shape now. We are more optimistic now."

Another trader agreed saying: "It's just higher in general. The spreads are bid up, and I see more demand come in."

A third trader said some traders are short and he was seeing some liquidity from end-users. "More end-users will start to come back in the coming weeks. Our view is the market has hit the bottom," he said. "There is strength in the forwards. There is not a huge amount of excess inventory and healthy demand interest on a forward basis. That gives us confidence."

The third trader said he would not be surprised to see premiums in the mid-20s cents/lb again. The Platts US aluminum Transaction premium was at 18.85 cents/lb as of Jan. 12, compared with 27.25 cents/lb a year ago.

Market split on premium rise

But the view of an improved 2024 for aluminum is not shared by all. Some market participants stressed premiums are not expected to improve markedly until demand picks up in earnest.

"We need strong end-user fundamental demand," another trader said. "The LME spreads are good, but it's still not covering the cost to carry. It's a buyer's market in the US. There is plenty of stock to supply demand."

Another source said they "don't see anything in the near term to push the envelope," but noted, "maybe Q2 will be better; but I said that last year, and it never happened."

That rough 2023 is still in the forefront of many market players' mind. What was a much-anticipated banner year never materialized and was marred by recessionary fears, inflationary woes and rising interest rates, leading to tempered demand, very few spot physical transactions and consumers destocking inventory.

Another trader pointed to uncertainty over the US Federal Reserve cutting interest rates levels this year as a big wildcard for demand. "With this much volatility in the market, I do not have positive outlook," he said.