White-hot metals market cools in warning to global economy

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(Bloomberg) – A white-hot corner of the aluminum market that for months has defied a broader drop in metal prices is finally collapsing, signaling that major industrial economies are stumbling toward recession.

While market-grade aluminum bars have been falling since March on the London Metal Exchange, until recently the premiums paid for specialist products like billets remained exorbitant. Now those premiums for aluminum billets – an industrial commodity used to make extruded parts in buildings, cars and machinery – are falling from record highs in Europe.

This is one of the first signs that investor fears of a widespread industrial slowdown are beginning to align with conditions on the ground in physical metals markets. It’s a sharp turnaround for the billet market, which has become a microcosm for Europe’s pandemic supply chain struggles.

“We are seeing a slowdown in our construction order intake, and these customers are typically the quickest to respond,” said Rob Van Gils, managing director of Hammerer Aluminum Industries, which uses billets to make products. specialty extrudates. “Other areas like automotive and electronics are still healthy, but it’s definitely not as hot as last year.”

Premiums for billets, which are not exchange-traded, hit record highs in March as soaring energy prices put smelters out of service and prohibitively expensive container freight hampered imports. With demand booming and the risk of further disruption looming, industrial buyers rushed to stockpile, adding to unprecedented tension in the region.

This stockpiling has helped inflate premiums and commodity exchange prices across Europe as buyers shift from just-in-time supply chain management to building up reserves in case of sudden shortages. Now, the logistical problems are starting to ease and consumers are sitting on huge stocks.

“One of the reasons why the billet premiums rose so high, in addition to the good demand, was the logistics,” explains Massimo Grifone, commercial director of Genoa-based trader and distributor Cauvin Metals Srl, which is part of a 132-year-old Italian commodity group. Vittorio Cauvin SpA.

“There are currently no big requests because everyone has already bought; now you have tickets on the ground and the majority of buyers have inventory more or less through September,” Grifone said.

The extent of the slowdown in demand remains the big unknown. Concerns about the recessionary impact of high energy prices and even potential power shortages are making European metal consumers wary of buying stocks.

Hammerer’s Van Gils is still betting demand for aluminum will rise slightly next year as growing use of light vehicles and solar panels offsets a contraction in the construction sector. But that forecast would disappear if the worst fears about Europe’s energy crisis materialized, he said.

“I don’t think anyone can say for sure that this is how events will unfold, but there is a reasonable concern that they could,” said Duncan Hobbs, head of research at metals traders. Londoners Concord Resources Ltd. “As a result, people don’t want to hold substantial inventory.”

© 2022 Bloomberg L.P.

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