Industry trade

Aluminum orders stagnate as U.S. buyers fear recession

U.S. aluminum buyers are holding back new orders for fear that rising inflation and collapsing supply chains could trigger a recession.

Spot deals have taken a break in recent weeks as Russia’s invasion of Ukraine added heightened uncertainty to a market already facing long lead times and falling demand, according to several people who trade light industrial metal.

Buyers continue to take delivery of their metal under contract, but recent economic gauges have people worried enough to delay buying more for their shipments.

A measure of U.S. manufacturing activity faltered last month, falling to its lowest level since 2020 as new orders and production slowed, while U.S. consumer prices rose the most in 40 years, rising gasoline prices and food inflation increasing pressure on the US federal government. Reserve to raise interest rates.

“There is demand destruction happening on different fronts, but as the market is still working on backorders, market players are not really feeling it yet,” said Harbor Intelligence managing director Jorge. Vazquez, during a telephone interview. “It’s about shortages of key components, but also about exhaustion of demand – people who wanted a motorhome, a boat, a bike, a washing machine or those who renovated their house, it’s finished.”

A major driver of the slowdown is the continued shortage of semiconductors in the automotive industry, which is preventing automakers from reaching full capacity.

The automotive industry accounts for 31% of U.S. aluminum needs, according to data from the Aluminum Association industry group.

The cost of shipping aluminum to the US Midwest has fallen over the past two weeks, indicating that listing activity has slowed.

The CEO of Alcoa Corp, the largest U.S. producer, said on last week’s earnings call that chip shortages were making supply chain disruptions more difficult, creating ripple effects for broader economic growth.

While Alcoa left its full-year shipment outlook unchanged, the Pittsburgh, Pennsylvania-based producer now expects global aluminum demand to grow 2% this year, compared to its previous growth outlook of 2-3%.

While the automobile has slowed down, aluminum still has its bright spots. Aerospace sales and packaging are strong. Packaging, which accounts for one-fifth of aluminum demand in the United States, has seen an increase in recent years as more people drink beverages from cans instead of plastic bottles.

Aluminum producers do not yet expect significant drops in shipments.

Much of the hesitation comes from buyers and sellers weighing whether inflation, supply chain bottlenecks and rising energy costs will persist in the second half. The widespread economic effects of COVID-19 lockdowns in China are also adding to the uncertainty.

“We see the COVID situation which has evolved again in China, and we have war, so it is difficult to see how it will play out,” Hilde Merete Aasheim, CEO of Norsk Hydro ASA, one of Europe’s largest producers who also did business in the United States, said in a telephone interview. “We fear that with the pressure we see now, we could go into a recession, but there is so much going on.

Other metals:

‧Gold for June delivery on Friday rose US$20.40 to US$1,911.70 an ounce, down 1.2% on the week.

‧Money for July, delivery fell $0.09 to $23.09 an ounce, down 5.6% for the week, and July copper fell US$0.02 to US$4.41 a pound, down 3.7% on the week.

Additional reports per AP

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