Aluminum industry says auto demand will provide biggest wave since beverage cans

The aluminum industry expects the automotive sector will generate the biggest wave of new demand since manufacturers started using the lightweight metal to make beverage cans.

“For us, it’s equivalent to the invention of the (aluminum) can which was introduced to many markets about 50 years ago,” said Aluminum association of Canada president Jean Simard Friday.

Automaker giant Ford plans on reducing the weight of its F-150 pickup truck by increasing the amount of aluminum used to 315 kilograms from 45 kg on current models.

Simard called the move a “game-changer,” prompting competitor General Motors to become less reliant on heavier steel for some of its models.

Aluminum producers have faced a rough few years with high inventories causing prices to crater.

But industry leaders say that the longer-term outlook for aluminum is brighter, largely due to big changes in the transportation industry.

They say vehicles such as cars, trucks, buses and planes already consume about one-quarter of global aluminum production each year but demand from the transportation sector is expected to grow by four to six per cent annually.

Demand is also expected to be spurred by new fuel efficiency standards in the United States.

Aircraft manufacturers including Bombardier are also increasing the use of aluminum and composite materials on their new products to reduce fuel consumption. The electrification of bus networks is also prompting transit companies to use more aluminum.

Representatives from Rio Tinto Alcan, Alcoa and the Alouette smelter said Friday they will press Quebec’s new Liberal government to lower electricity rates to make aluminum production in the province more globally competitive.

But Alouette CEO Andre Martel says he doesn’t expect the tone of negotiations will change much with the change of government.

The large smelter and other producers are seeking “significant” rate reductions that would allow facilities to be expanded, and create new jobs.

Martel declined to say what rates it is seeking, noting they must be globally competitive.

In February, Alcoa reached a rate deal with the Parti Quebecois after threatening to close three Quebec smelters if Hydro-Quebec didn’t lower its electricity rates.

Rio Tinto Alcan is also seeking a reduction to compete with lower cost production in the Middle East.

“We are always in discussions with Hydro-Quebec because when we implement plants we are doing that for 50, 60, 70 years so we need to always be able to predict the future,” said Jacques.

Is This Why Copper Is Tanking?

From "world renowned" Dennis Gartman's letter to investors (sent overnight):  

"NEW RECOMMENDATION: our interest in copper is piqued and we’ll “punt” copper this morning from the long side, buying May copper at or near to $3.0630/lb. as we can, with stops at this morning’s low of $3.025. We look for copper to make a run to $3.15 or even higher and on a close above $3.07 today… if possible... we’d add a 2nd unit to the trade."

Sure enough, first thing this morning:

Europe Folds As Putin Tells It To Pay Ukraine's Gazprom Bill, Or Else ...

Another day ending in "y" means another day in which Putin plays the G(roup of most insolvent countries)-7 like a fiddle.

The latest: Europe should provide aid to Ukraine to ensure uninterrupted natural-gas deliveries to the region, President Vladimir Putin’s spokesman said as reported by Bloomberg.

"Russia is the only country helping Ukraine’s economy with energy supplies that are not paid for,"  Dmitry Peskov told reporters today in Moscow,  commenting on President Vladimir Putin’s letter yesterday to 18 European heads of state. “The letter is a call to immediately review this situation, which is absurd on the one hand and critical on the other.

Said otherwise: PUTIN SAYS EUROPE GAS TRANSIT DEPENDS ON UKRAINE: IFX

Or, as we explained yesterday, Russia is quite happy to keep the EU gas flowing... as long as Ukraine has enough gas in storage to assure Gazprom it won't syphon off gas destined for Europe. So how much gas does Ukraine need to pre-stock? About $4-5 billion worth. The problem is that Ukraine doesn't have a dime to spend on gas.

So putting the question aside if Ukraine will or won't import even one bcf of Russian gas ever again (thanks to some fracking or US natgas exporting magic), what Putin just said is that if Europe wants an uninterrupted supply of gas it better find a way to fund Ukraine to the tune of up to $5 billion, or else the gas may just get shut off.

And guess what: Putin is about to win yet again:  

European Energy Commissioner Guenther Oettinger is working on a plan to help Ukraine pay some of its gas bills to Russia, he told Austria's ORF radio on Friday, saying there was "no reason to panic" about Russian gas supplies to Europe.

"We are in close contact with Ukraine and its gas company to ensure that Ukraine remains able to pay and the debts that the gas company has to Gazprom do not rise further," he said, adding he would meet Ukraine's energy and foreign ministers on Monday.

"I am preparing a solution that is part of the aid package that the IMF, the European Union and the World Bank is giving to Ukraine and from which payment for open bills will be possible."

Marc Faber Warns "The Market Is Waking Up To How Clueless The Fed Is"

"I think it's very likely that we're seeing, in the next 12 months, an '87-type of crash," warns a somewhat excited sounding Marc Faber, adding that he thinks "it will be worse."

The pain is just getting started as Faber notes that "the market is slowly waking up to the fact that the Federal Reserve is a clueless organization." Internet and Biotech sectors (growth stocks) are "highly vulnerable because they're in cuckoo land in terms of valuations," and fully expects the selling to spread as The Fed "have no idea what they're doing. And so the confidence level of investors is diminishing," and that means we will see a major decline.

Copper, iron ore imports defy China weakness

Markets were shocked on Thursday by surprisingly weak trade data from China, the world's second largest economy, that showed overall imports falling by double digits and exports declining 6.6%.

But China's appetite for raw materials like iron ore and copper appear undiminished.

Chinese steel mills and iron ore traders made the most of soft prices for the commodity in March, ramping up imports 21%.

After a steep drop off, mostly attributed to seasonal factors, in February of more than 25 million tonnes from the record setting pace in January, imports jumped to just under 74 million tonnes in March.

First quarter imports are 19% higher than last year and at 222 million tonnes imply an annualized tally of almost 890 million tonnes, compared to 2013's 820 million tonnes.

The surge in imports also come despite iron ore stockpiles at China's ports reaching fresh highs of 108 million tonnes this week.

Long a practice in the copper market, some estimates put the portion of the country's iron ore stockpiles used as collatoral for trade credit at 40%.A factor boosting imports is tightening domestic credit conditions in China which encourage imports as part of financing deals.

The benchmark price of iron ore was down slightly on Thursday, but is up 14% from 18-month lows suffered early March.

According to data from the The Steel Index, the import price of 62% iron ore fines at China's Tianjin port lost $0.30 to $119.10 per tonne on Thursday, down from $134.20 at the start of the year.

Copper shipments also defied weakness in China, rising a whopping 31.4% on year to 420,000 tonnes. That's up from 379,000 tonnes in February due to the Lunar New Year holiday, but down from a particularly strong 536,000 tonnes in January this year.

China's copper imports are very price sensitive and the red metal fell to a near four-year low in March of $2.92 a pound.

The copper price has since recovered to above $3.00 a pound, but is down more than 10% year to date and a new study suggests more pain is in the offing.

The closely-watched Thomson Reuters GFMS Copper Survey forecasts a period of copper market surpluses as global mine supply ramps up and predicts the average price to test $2.75 a pound ($6,000/tonne) in the second half.

Is Aluminum’s Nine-year Surplus Finally Ending?

2013 wasn’t a great year for aluminum. During the first nine months of the year, production of the metal exceeded demand by 1.2 million metric tons (MT), The Wall Street Journal quotes the the World Bureau of Metal Statistics as saying. That’s more than double the surplus recorded during the previous year.

Unsurprisingly, prices for the metal were hit hard by that oversupply. Specifically, states the news outlet, as the year drew to a close, three-month aluminum on the London Metal Exchange (LME) was down at $1,748 per MT, its lowest point since July 2009.

That may sound bad, but a broader look at the aluminum market shows that it’s not just this past year that the metal has performed poorly — it’s been down in the dumps for nearly a decade. As Bloomberg notes, “[t]here have been nine years of excess global production … with Chinese output tripling in the period.”

All that doom and gloom makes this week’s news that in 2014 the metal may go into deficit that much more significant.

Alcoa’s positive prediction

Providing that positive news was Alcoa (NYSE:AA), one of the world’s top aluminum producers. It released its first-quarter results on Tuesday, at that time also commenting that it sees the aluminum market falling into a 730,000-MT deficit this year. That’s up significantly from the deficit of 106,000 MT the company predicted back in January, as per Bloomberg.

Driving that deficit, the company said, will be a 7-percent increase in worldwide aluminum demand, much of which is expected to come from the aerospace sector. However, auto sector demand, particularly from Ford (NYSE:F), which needs the metal for its lightweight F-150 pickup truck, will also play a role, said Klaus Kleinfeld, chairman and CEO at Alcoa. “The opportunity in auto is tremendous,” Bloomberg quotes him as saying.

Price update

Aluminum prices have certainly gained some support from Alcoa’s new outlook. Most recently, Bloomberg pegged LME aluminum for three-month delivery at $1,827 per MT, above the $1,700 to $1,800 range it traded in for 2014′s first quarter.

However, that prediction isn’t the only factor that’s been positively impacting the metal’s price — a week prior to the company’s announcement, aluminum broke its 200-day moving average for the first time since March 2013, with three-month aluminum approaching $1,850 per MT, as per MetalMiner. Explaining the gain, Forbes notes that it was related to the UK High Court’s decision to uphold Rusal’s (EPA:RUSAL) block on the implementation of new LME warehouse rules. If put in place, the rules would have “depressed the spot premiums manufacturers like Alcoa depend on.”

At the moment, it’s uncertain if prices for the metal will continue to rise. After all, as Forbes points out, structural factors such as “persistently high aluminum inventory relative to demand” are still an issue. However, Alcoa’s deficit prediction certainly seems to indicate that a shift may be in the works.

Another SPX Chart 1946 2014 Co-relation