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Supply chain snags that have roiled commodity markets and helped push aluminum prices to a 13-year high this week are unlikely to ease any time soon.
That is the message coming from producers, consumers, traders and shippers at North America’s largest aluminum conference, which ended Sept. 10.
Aluminum has jumped 48% this year on surging demand, shipping bottlenecks and production curbs in China, stoking inflation concerns and causing a major headache for consumer-goods producers facing worsening material shortages alongside the sharp rise in costs. Snarled supplies will continue to dog the industry through most of 2022, many conference participants said, with some projecting it could take as long as five years to resolve the issues.
Global supply chains, with container shipping as their backbone, are struggling to keep pace with the demand for goods and overcome labor disruptions caused by COVID outbreaks. Compounding matters in the aluminum industry are worker shortages at plants and a lack of truck drivers to deliver the metal that is available.
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“For us it’s been a mess, and as we look ahead to 2022 we don’t see this going away any time soon, unfortunately,” Commonwealth Rolled Products CEO Mike Keown said at the Harbor Aluminum Summit in Chicago. “For us, we think it’s just begun. It’s kept our head on a swivel this entire time.”
Commonwealth makes value-added aluminum products that it sells to the automotive industry, which has faced its own production issues because of a shortage of semiconductors.
Several aluminum-conference attendees said labor shortages are their biggest problem, and they don’t have any idea when the situation will slacken.
“Consumers are ordering more than 100% of their expected needs,” said Adam Jackson, director of metals trading at Aegis Hedging. “They don’t expect to receive 100%, but if they over-order, maybe they’ll land on the right amount and not forfeit sales. Such a practice has a serious risk if prices fall and you’re carrying extra unhedged inventory.”
The surge in aluminum prices comes as producers and consumers negotiate annual supply contracts. Buyers are holding off as long as possible from making agreements because shipping premiums are so high. They also are waiting for indications on whether Russia, the world’s second-largest aluminum producer, will keep an expensive export tax into next year, according to Jorge Vazquez, managing director at Harbor Intelligence.
All of this could signal further price increases. Harbor Intelligence said its bull case for aluminum in 2022 is an average price of about $2,570 per metric ton. That’s about 9% higher than the average so far this year for benchmark aluminum traded in London. Harbor also estimates that the so-called Midwest premium, the amount added to deliver the metal to the U.S. Midwest, will surge to an all-time-high 40 cents a pound in the fourth quarter, which would mark a 185% increase from the end of 2020.
“Mess is probably a good word,” said Buddy Stemple, CEO of Constellium SE’s rolled-products business in Ravenswood, W.Va. “I have never been through a period like this in which you had so many factors at once.”
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