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1、Commodities Research 21 March 2013 PLEASE SEE ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES STARTING AFTER PAGE 8 Base Metals Flash Aluminium Outlook: US boom, near-term price gloom We attended the CRU North American Aluminium trends conference in Miami last week. Interaction with key consumers e
2、nabled us to take the pulse of current and prospective demand conditions and consider other key issues in the market. Our key conclusion was that US aluminium consumption is indeed gaining positive traction with headline trends in end-demand sectors. With the rise in the number of units produced and
3、 the increasing input per vehicle, the US auto sector continues to offer the most promising trends for aluminium demand, as the industry aggressively tackles the fuel efficiency targets mandated by the US governments CAFE standards to be achieved by 2025. Aluminium is at the centre of light-weightin
4、g across the industry. In the construction sector, extrusion producers have benefited from the uptick in US housing. However, there is some constraint on potential upside leverage for aluminium demand in some applications, such as residential windows and doors, due to substitution with plastics. US
5、fabricators raised concern over the threat of Chinese semis exports given higher semis output growth than end-demand improvements. Risks of higher exports remain, but we believe that policy barriers will prevent dumping and that double counting in Chinese data inflates the potential exportable semis
6、 surplus. On the supply-side, discussion continues regarding how the natural gas boom in the US will ultimately impact production costs in the US primary smelting sector. So far, we have yet to see any general effect on smelter electricity costs because only as power contracts are reset will there b
7、e any participation. Consumers do not anticipate a significant downward correction in US Midwest physical premia in 2013. Regional fundamentals remain supportive as do the pre- existing queues on LME material delivery. In the short term, however, consumer hedging appetite is being limited by the poc
8、kets of backwardation in the forward curve, which could drive deliveries and in turn create some headwinds to premia. In terms of LME cash price levels, expectations were for a range-bound year with hedging strategies levered to sub-$2,000/t moves. Recent production cuts in both Russia and China amo
9、unting to 700Kty alongside signs of improving activity in China support expectations for higher prices during H2 13. Gayle Berry +44 (0)20 3134 1596 Sijin Cheng +65 6308 6320 Nicholas Snowdon +1 212 526 7279 Shiyang Wang +1 212 526 7464 Barclays | Base Metals Flash 21 March 2013 2 Consumption r
10、ising, but prices face headwinds We attended the CRU North American Aluminium trends conference in Miami in last week. This gave us the opportunity to gather evidence on several critical dynamics in the aluminium market. First and foremost, we were able to gauge current and prospective demand condit
11、ions in the US market, particularly in terms of key end-usage sectors, namely in transportation and construction. Second, we were able to test whether the shale gas “revolution” in North America has derived any cost benefits to primary smelters production and how this may ultimately effect the produ
12、ction outlook. Finally, the conference provided the opportunity to test industry participants hedging appetite in line with regional physical premiums and LME price expectations. The key conclusion was that US aluminium consumption is indeed gaining positive traction with headline trends in key end-
13、demand sectors. The regional auto market is robust at present and we expect this trend to strengthen as aluminium plays an important role in the raw material mix needed to meet fuel efficiency needs. Smelters have yet to benefit from lower regional energy prices, although we anticipate this will eve
14、ntually change when power tariff resets are reached. In light of this, market participants expect tight US aluminium market fundamentals in 2013, which alongside ongoing inventory financing activity and queues at LME warehouses, should be supportive of regional physical premiums. However, hedging ap
15、petite is limited by the near-term backwardations in the LME curve that may support near-term deliveries and create some headwinds to premia. US demand matches macro optimism US auto sector continues to fuel regional aluminium demand Much optimism has been generated regarding the US economys relativ
16、e growth prospects in recent months. Our discussion with aluminium consumers directly leveraged to the key sectors of construction, transportation, and packaging enabled us to test whether downstream micro trends match the prevalent macro confidence. Our discussion with both auto manufacturers and O
17、EMs offered a positive view on both current order book levels and the confidence that this would continue into the second half of 2013. Whilst the figures quoted were mixed, the general view was that the risks were skewed to the upside regarding Barclays equity analysts projection (U.S. Autos constr
18、uction, cars and cans! FIGURE 2 Barclays forecasts average 2% annual growth in NA light vehicle output over the 2013-16 period B however, this appears to be shifting. In 2014 Ford will launch its F150 truck, which will use mainly aluminium in the trucks body panels. This is very important not only b
19、ecause of its mainstream consumer shift, but also because the truck sector will have to make even more significant light-weighting moves to meet CAF The light weighting of vehicles, driven by CAFE standards, will firmly benefit aluminium FIGURE 3 North America has been a leader in move to lighter ve
20、hicles driving aluminium content 22% higher since 2005 FIGURE 4 CAFE fuel efficiency target for 2025 suggest that aluminium content may have to rise as much as 50% 0 20 40 60 80 100 120 140 160 180 ChinaGlobalW EUNorth America Japan 20052012 Aluminium content of the average light vehicle (Kg) 20 25
21、30 35 40 45 50 55 60 201220162025 Mpg requirements mandated gy the US Governments Corporate Average Fuel Economy standards Source: Barclays Research Source: US Government, Barclays Research Shift from largely castings to structural use will be critical juncture in auto sector Barclays | Base Metals
22、Flash 21 March 2013 4 standards over the next few years, with as much as an 80% increase in aluminium input, according to conference participants. Consumer reaction to such products will be crucial, particularly in terms of safety performance and, of course pricing, sensitivity aluminium is clearly
23、a premium product compared with steel. US housing recovery supports but substitution constrains Besides the North American auto sector, aluminium also has notable leverage to the other positive shift in the US economy, namely the ongoing recovery in the US housing sector. Our economists have recentl
24、y addressed the issue (2013-14 US housing market outlook: The beat goes on, 25 January 2013) with the conclusion that solid positive momentum in the sector will continue through 2013 and 2014. They project that housing starts will average 1.0mn units in 2013 and 1.2mn in 2014, which follows 780K uni
25、ts in 2012 and an average of 583K units during 2009-11. Given that construction accounts for 13% of regional aluminium demand, it is a positive development for consumption, although not to the same degree as copper (44%) and zinc (50%) in terms of sector leverage. Interestingly, North American alumi
26、nium demand has recovered at a faster pace than the housing sector (Figure 5), which reflects the outperformance of the metals core demand driver the auto market. Conversations with aluminium extrusion producers leveraged to the US construction sector actually offered a more constrained tone than th
27、e headline recovery in sector would have suggested. The main reason for this caution was due to the negative substitution effects that have been seen in some applications over the past decade, such as residential windows and doors moving to inputs such as vinyl. To this point, Aluminium Association
28、data still showed US extruded product mill orders rising by 7% y/y in 2012 compared with a 28% increase in US housing starts for the year. US can demand continues to contract with growth focused on BRICs The final area of discussion focussed on the North American can sector. This was the weakest of
29、the three Cs in terms of regional demand and not a surprise. In fact packaging demand in the region has largely stagnated since 2009. Aluminium Association data for example shows orders for domestic can stock fell 1-2% y/y consecutively from 2010 to 2012. This trend is largely a reflection of consum
30、ers health-driven trends away from soft drinks, as well as broader demographic/economic effects, which create a stagnant environment for beer consumption. This is not of course news to can producers and their overwhelming emphasis given the North American end-demand picture was a focus on Recovery i
31、n US housing sector support aluminium demand for construction Aluminium has lost market share to vinyl and wood in the residential window and door frames sectors FIGURE 5 US housing market recovery is anticipated to continue into 2013-14 offering solid support for aluminium demand FIGURE 6 Mill orde
32、r data for the US this year does not match the sentiment offered in terms confidence over the outlook 4500 5000 5500 6000 6500 7000 7500 8000 500 700 900 1100 1300 1500 1700 1900 2100 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012E 2013F 2014F US housing starts (K un
33、its, LHS) North American primary aluminium demand (Kt, RHS) -20% -15% -10% -5% 0% 5% 10% 15% 20% 25% 30% Aug-10Feb-11Aug-11Feb-12Aug-12Feb-13 SheetExtruded ProductsTotal less can Monthly Net New Orders for US Aluminum Mill Source: Barclays Research Source: Aluminium Association, Barclays Research Ca
34、n demand continues contract modestly in NA Barclays | Base Metals Flash 21 March 2013 5 emerging markets where demand prospects are far more robust. In China, for example, packaging only represents 4% of aluminium demand by end-use compared with 22% in North America. Threat of China semis imports to
35、 US fabricators? The final issue discussed with US fabricators was the perceived threat posed by Chinese semis exports. Part of this concern is historical and stems back to the 2007-10 period when imports of Chinese aluminium extrusion products rose sharply and created clear competitive pressures fo
36、r equivalent US products. This was however tackled by the US Department of Commerce in April 2011 when it imposed anti-dumping and countervailing duties to offset what the DOC described as “the unfair competitive advantage due to government subsidies.” In addition, the DOC imposed new duties on fini
37、shed merchandise (within the curtain-wall system) in December last year. Despite these significant economic barriers to dumping, concerns persist. Domestic semis production in China has surged ahead of end-demand growth levels over the past few years, suggesting a significant surplus of semis materi
38、al is being built due to overcapacity in the sector. From 2010 to 2012 Chinese semis output grew 48% (CNIA data) compared with 13% growth in demand for primary material based on Barclays calculations. Whilst China will likely remain a net exporter of semis for the foreseeable future, we also downpla
39、y the flooding risk because we believe that the strength of the semis production growth is not coherent when taken in line with end-demand data. In addition, evidence of primary stock builds (+600Kt in 2012) is not in-line with data showing semis output outstripping primary smelter production levels
40、. In that context, there should be a deficit in primary units given that this is the critical raw material feed for semis producers. Moreover, in 2012 semis exports actually fell close to 7%, with external demand weakness and unfavourable export economics (even with substantive rebates include). If
41、the surplus of semis material was as significant as the semis output data suggest, then domestic prices should have fallen relative to international to make exports more economic. We believe that there is some double counting in the semis production number that explains its incongruence with other d
42、ata trends. In addition, we think that the antidumping measures in the US limit the risks of semis exports from China posing a serious competitive threat to US fabricators. In our view, Chinese semis manufacturers will orient towards domestic consumption where trends are projected to be the stronges
43、t globally in the coming years. Anti-dumping measures in the US have lowered the risks of China semis exports FIGURE 7 US aluminium fabricators are concerned of a potential flooding effect of Chinese semis exports during 2013-14 FIGURE 8 Power prices have followed the trend of US natural gas prices
44、lower over the past five year -80 -40 0 40 80 120 160 200 240 280 320 Jan-01Jan-04Jan-07Jan-10Jan-13 China net semis exports (Kt) Imports Exports 0 20 40 60 80 100 120 140 160 0 2 4 6 8 10 12 14 Jan-08Jan-09Jan-10Jan-11Jan-12Jan-13 $/Mwh$/MMBtu Henry Hub PJM West whole sale on-peak price Source: Chi
45、na Customs, Barclays Research Source: ICE, CME, Barclays Research China semis production data are overstating the degree of surplus being generated Barclays | Base Metals Flash 21 March 2013 6 Shale gas revolution = US aluminium producer boom? Demand fundamentals aside, one of the critical questions
46、 posed at the conference concerned the extent to which lower US natural gas and subsequently lower power prices, have affected production costs of primary smelters in the region. Power prices have fallen significantly over the past four years across all regions of the country (Figure 8). The chart i
47、ndicates that on-peak PJM West whole sale prices fell by more than 50% on average in 2012 compared with the annual average of 2008, while that of natural gas came off by 68% in the same time frame. The lower power prices were mainly the result of dropping natural gas prices. In any power market, pri
48、ces are set by the marginal fuel in the power stack. Historically, natural gas has been the marginal fuel in most of the Eastern seaboard power markets, therefore, when gas prices tumbled power prices dropped as well. However, smelters have yet to benefit (Figures 9 and 10). If anything, the trend i
49、n US primary aluminium smelters electricity costs has been higher and inverse to that seen in natural gas and power prices. This result is largely a function of the nature of US smelter FIGURE 9 Aluminium smelter power prices have not however have tracked the gas-power complex lower FIGURE 10 Rising heat rates in PJM in 2012 point to better spark spreads (margins for gas plant generators) 2 3 4 5 6 7 8 200 250 300 350 400 450 500 5