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Aluminum Highlights

Week Ending: February 24, 2017An update on Industry activity and economic indicators

Market ViewBy: Timothy P. Hayes, CFA – Lawrence Capital Management

The views expressed in the “Market View” are those of the author and do not necessarily represent the views of the Aluminum Association

Aluminum prices settled down over the past week. While the LME cash prices were $20/mt higher from the end of the previous week, their average of $1877/mt was little changed from the prior week’s average. Prices during the latter part of February have reached their highest levels since May ’15. This is a rebound in prices from their lows in November ’15, as industry fundamentals tightened in ’16, posting their first deficit in eight years. So far in ’17 the market appears in balance. LME inventories haven’t budged this year. Shanghai inventories, meanwhile, are up nearly 90 kmt, with most of the rise occurring so far in February. This has reversed the trend in ’16 when stocks fell by around 200 kmt.

Restocking in China can be partly attributed to the rise in domestic production. Chinese output in January rose to an annual rate of 34.7 mmt—a fresh record. Production is 19% higher than it was in January of ’16 when output was being cut sharply due to persistently low aluminum prices. The cuts were so substantial that the year as a whole brought an unexpected event in Chinese aluminum industry: a fall in production. Although slight at 0.4%, the decline in ’16 was the first on record (using IAI data that goes back to 1999). In comparison, global output was up 1.4% as production for the rest of the world rose 3.6%.

The significant rise in Chinese production in January accounted for all of the rise globally for the month. Output for the rest of the world was unchanged versus December, and it was also little changed from the year-ago month, up only 0.4% versus January ’16. This shows that when it comes to global production trends, it’s still pretty much all about China, save 2016.

This report is based on information reported to the Association by participants, which is aggregated by the Association. While the Association believes that its statistical procedures and methods are reliable, it does not warrant the accuracy or completeness of the data. All data contained herein are subject to revision. For further information, contact Ryan Olsen, V.P. Business Information and Statistics at 1-703-358-2984 or email rolsen@aluminum.org. © The Aluminum Association, Inc. All rights reserved.

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2Industry Activity

February 24, 2017

February 22 – Estimated shipments of Aluminum Drawing Stock, Bare Wire and Rod & Bar by U.S. and Canadian producers totaled 108.3 million pounds during January 2017, a rise of 11.9 percent over the January 2016 total of 96.8 million pounds. Compared to the previous month, shipments increased 26.1 percent over the December 2016 revised total of 85.9 million pounds. Shipments for 2016 totaled a revised 1,180.9 million pounds, off six-tenths of one percent from the 2015 total of 1,188.5 million pounds.

February 20 – The U.S. aluminum industry purchased an estimated 741 million pounds of aluminum scrap during December 2016, according to aluminum recycling statistics published by the U.S. Geological Survey, Department of Interior, up 9.0 percent over the December 2015 total of 680 million. USGS estimates that recovery of aluminum and aluminum alloys totaled 634 million pounds, an increase of 10.1 percent year-over-year. In 2016, preliminary data indicate that recovery of aluminum from scrap totaled an estimated 7,963 million pounds, up 7.0 percent over the 2015 total of 7,441 million. U.S. exports of scrap, not included in the government’s consumption statistics, totaled 2,982 million pounds in 2016, down 13.1 percent from 2015.

February 22 – Preliminary estimates indicate that aluminum demand in the United States and Canada (shipments by domestic producers plus imports) totaled an estimated 26,247 million pounds in 2016, up 2.0 percent over 2015. Demand for semi-fabricated (mill) products totaled 18,396 million pounds, up five-tenths of one percent. Apparent consumption (demand less exports) in domestic markets totaled an estimated 23,125 million pounds, up 1.2 percent year-over-year.

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3Economic Activity

February 23 – In the week ending February 18, the advance figure for seasonally adjusted initial claims of unemployment insurance was 244,000,an increase of 6,000 from the previous week's revised level. The previous week's level was revised down by 1,000 from 239,000 to 238,000. The 4-week moving average was 241,000, a decrease of 4,000 from the previous week's revised average. This is the lowest level for this moving average since July 21, 1973 when it was 239,500. The previous week's average was revised down by 250 from 245,250 to 245,000. An initial claim is a claim filed by an unemployed individual after a separation from an employer.

February 15 – Builder confidence in the market for newly built single-family homes declined two points in February to 65 on the NAHB/Wells Fargo Housing Market Index (HMI). All three HMI components fell in February. The component gauging current sales conditions dipped one point to 71, and the index charting sales expectations in the next six months registered a three-point decline to 73. The component measuring buyer traffic dropped five points to 46. Results in each of the three components create a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor.

February 24 – Sales of new single-family housesin January 2017 were at a seasonally adjusted annual rate of 555,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 3.7 percent above the revised December 2016 rate of 535,000 and is 5.5 percent above the January 2016 estimate of 526,000. The median sales price of new houses sold in January 2017 was $312,900; the average sales price was $360,900.

February 24, 2017

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4Global Trends

February 24, 2017

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February 20 – According to data collected by the International Aluminium Institute and the Aluminum Association, the global primary aluminum production rate totaled an estimated 62.0 million tonnes in January 2017, an increase of eight-tenths of one percent m/m, and an increase of 9.7 percent y/y. Actual production in January totaled an estimated 5.27 million tonnes, up 1.1 percent m/m. The annual production rate in North America (U.S. and Canada) decreased two-tenths of one percent m/m, and was off 4.7 percent y/y. In China, the annual rate of production reached 34.7 million tonnes, up 1.8 percent m/m, and up 18.6 percent y/y. In the Rest Of the World, the annual production rate in January 2017 was off four-tenths of one percent m/m, but up 1.0 percent y/y.

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5Energy

February 24 – According to this week's release by the Federal Reserve Board, the Nominal Broad Dollar Index closed the week at 125.41 on Friday, decreasing five-tenths of one percent from last week's close of 126.04. Last week, the Index increased two-tenths of one percent. Since the start of 2017, the Index is off 2.2 percent. Over the last six months, the index is up 3.9 percent, while it's up 1.6 percent over the last 12 months.

The nominal broad dollar index is a weighted average of the foreign exchange values of the U.S. dollar against the currencies of a broad group of major U.S. trading partners.

February 24 – On the NYMEX, near-month WTI crude oil futures (Cushing, OK WTI Future Contract 1) closed the week at $53.99/bbl on Friday, February 24, up $0.59 (+1.1%) from last week's close of $53.40/bbl. The weekly gain in oil futures seems to reflect expectations for growth in future crude demand as well as relatively high compliance by members of OPEC with output reductions. Active U.S. oil-drilling rigs increased by 5 this week to 602, after increasing by 6 the week before. Compared to last year, oil rigs have increased by 202. Brent Crude on London's ICE Futures exchange closed the week up at $55.99/bbl (+0.3%). Friday's spread between the two was $2.00/bbl, down from last week's spread of $2.41/bbl.

February 23 – The U.S. Energy Information Administration reported that natural gas spot prices fell at most locations this report week (Wednesday, February 15 to Wednesday, February 22). The Henry Hub spot price fell from $2.92 per million British thermal units (MMBtu) last Wednesday to $2.53/MMBtu. At the New York Mercantile Exchange (Nymex), the March 2017 contract fell 33¢ from $2.925/MMBtu last Wednesday to $2.592/MMBtu.

U.S. Dollar

February 24, 2017

The Aluminum Association

6The Aluminum Association, founded in 1933, works globally to aggressively promote aluminum as the most sustainable and recyclable automotive, packaging and construction material in today’s market. The Association represents North America and foreign-based primary producers of aluminum, aluminum recyclers, producers of semi-fabricated products and foundries as well as suppliers to the industry or distributors or jobbers.

The Aluminum Association's statistical programs provide industry information on primary aluminum production, new orders of mill products, industry shipments, end use market estimates, inventories, recycling and foreign trade on a monthly, quarterly and annual basis. Special surveys provide data on specific subjects such as primary capacity, flat roll capacity, inventories and castings shipments. Custom reports are available on a for-fee basis. Web briefings are also available upon request.

Industry OverviewAluminum Statistical Review (Annual Fact Book)Aluminum Highlights (Weekly)Aluminum Situation (Monthly)Summary of Producer Shipments and Inventories (Monthly)

Primary AluminumPrimary Aluminum Production – U.S. and Canada (Monthly)Primary Installed Capacity (Annual)Shipments of Primary Aluminum by Form (Quarterly)

Mill ProductsIndex of Net New Order Receipts for Aluminum Mill Products (Monthly)Can Stock Shipments (Monthly)Electrical Conductor Shipments (Monthly)Extruded Products Shipments and Press Utilization (Monthly)Flat Roll Capacity (Annual)Foil Shipments (Monthly)Forging and Impacts Shipments (Monthly)Rod, Bar, and Wire Shipments (Monthly)Sheet and Plate Shipments (Monthly)

End UseExtrusion Shipments by End Use (Quarterly)Fin Stock Shipments by End Use (Quarterly)Foil Shipments by End Use (Monthly)Sheet and Plate Shipments by End Use (Quarterly)

CastingsU.S. Foundry Castings Shipments (Quarterly)Canada Foundry Castings Shipments (Annual)

RecyclingNew Can Stock (Class) Scrap Receipts (Monthly)Used Beverage Can Reclamation (Annual)

Foreign Trade (based on government customs data)Summary of U.S., Canada and Mexico Imports and Exports (by Commodity), MonthlyForeign Trade Online Database - U.S., Canada and Mexico Exports & Imports of Aluminum (By Commodity, by Country)

For a complete list of statistical publications and reports visit our bookstore.

February 24, 2017