Storm clouds are forming in the North American aluminum market, Bloomberg reported.
Manufacturers, processors and fabricators of the metal gathered at a conference in Washington this week to discuss government policy and end markets in a subdued mood, especially compared to a year ago, when the industry was experiencing its best times in a decade.
The so-called "mating season," when buyers and sellers negotiate terms for next year's needs, continues as uncertainties surrounding inflation, supply chains and economic growth make buyers hesitant to reserve more metal.
Buyers familiar with the negotiations raised the alarm in June, saying they expected "mating season" to start later. Now that those concerns have been confirmed, executives acknowledge that demand is weak as customers prefer to work with excess inventory rather than make new deals.
“While we do expect some potential clouds with the possibility of a broader economic slowdown, aluminum remains well-positioned to weather any storm,” said Buddy Stemple, the chief executive of Constellium Rolled Products.
Most insist that while the short-term market outlook is weak, they don't expect demand to decline. Some warned of a headwind that most haven't thought of yet: rising interest rates, which will almost certainly cause a flip in contracts for customers who have used near-zero interest rates to finance their metal purchases.
The benchmark price of aluminum traded in London is down more than 20 percent this year and has fallen nearly 50 percent from a record high in March as the war in Ukraine has threatened supplies.
The cost of shipping and logistics for metal in the U.S. is down 11% this year, raising the possibility that consumers will want to hold off on new contracts in the hope that costs can fall even further.
Alcoa Corp., the largest U.S. aluminum producer, said two weeks ago that high energy and raw material costs and low aluminum prices were weighing on the company, warning investors that it would cut profits in the third quarter. Century Aluminium Co. announced in June that it would suspend operations at one of its U.S. plants and lay off more than 600 employees because of rising energy prices.
The question arises whether the London Metal Exchange, the world's largest exchange for trading industrial metals, will ban Russian materials. The Aluminum Association, which represents U.S. aluminum companies, said this week that such a move would have "predictable effects" for domestic supplies, noting that unexpected U.S. sanctions on Russian aluminum in 2018 caused shocks to consumers who had to look for replacements.