New York—CME Group's AUP Midwest aluminum premium futures continued to rally in the front part of the curve on March 22, as the rest of the curve held steady due to consumers still out looking for spot tons.
The futures contracts trade on CME Globex and CME Clearport and settle on a monthly basis against the Platts Midwest transaction premium.The March contract settled at 18.454 cents/lb on March 15, up 0.417 cent/lb from the March 15 close, as the spot premium rose by 0.85 cent/lb to 19.60 cents/lb during the same period.
April settled up 0.423 cent/lb to 19.923 cents/lb, with 454 lots trading during the week ended March 22.
The March/April spread widened again slightly, settling at a 1.469 cent/lb contango on March 22, as inventories have continued to draw on steady demand and traders look to restock.
"With replacement costs and other regional premiums rallying we keep hearing 21 cents/lb" a consumer said. "We still need to buy some metal," that consumer added.
With prices rallying further into 2021, the market is starting to see participants selling the front-month contracts and buying further dated strips in 2021 in order to capture some of the backwardations and restock inventories, which entailed started to flatten the curve.
April/July spread continued to tighten to 0.363 cent/lb as did the May/July spread. The Q2/Q3 spread traded in a range from 0.20 cent/lb to 0.65 cent/lb, as the Q2 strip traded up to 20.25 cents/lb on both CME Globex and Cleaport, the first time the front part of the curve has been above 20 cents/lb since 2018.
The Q3 2021/Q1 2022 spread tightened to around 2.50 cent/lb backwardation, with 210 lots trading in H1 2022 from 16.75 cents/lb to 16.90/lb cents/lb during the week ended March 19.
"When you hear the mills are paying a premium you know the market will continue to move higher," a trader said.
The spot-to-six months premium spread held its' backwardation over the previous week and has averaged a 0.526 cent/lb contango during that time.
The last commitment of traders report by the Commodity Futures Trading Commission showed that as of the March 16 close, long positioning by swap dealers decreased slightly by 102 lots during the week to 13,570 lots, as spread activity increased by 84 lots to 943 lots. The short positions by managed money increased slightly to 1,062 lots.
The H2 2021 strip dipped slightly as the activity in Q3 was offset by a dip to 18 cents/lb in the Q4 strip on March 19. The Q4 2021/Cal 2022 spread sits just over a 1 cent/lb backwardation, as the market is now starting to price in that tariffs could be around for the balance of the year.
The market still awaits an update from the United States Trade Representative on quotas imposed on Canadian unalloyed aluminum imports under HTS 7601.10 for 2021.
US total imports of P1020 or greater were 86,935 mt in January, down 60% year over year.
"Freight costs are still very high, over double the price just six months ago, as the European premium rises the US will have to in order to compete for tons," a second trader said.
The USTR has not given any further guidance on quota amounts for 2021, keeping the Canadian supply of P1020 in the US very tight and increasing upcharges on higher purity metal such as P0610 and P0506.
Even with Canada shifting much of its' primary aluminum production to value-added products the market continues to run short as the US Spot 6063 billet premium held 19 cents/lb on March 18, with numbers heard as high as 24 cents/lb.
