AMU June survey: Expansionary signals retreat, balance outlook holds

Even so, market participants largely stopped short of forecasting an oversupplied market later this summer.

Qualitative lead times

June survey responses indicated less movement in aluminum lead times, but not necessarily shorter lead times.

About 81% of respondents described lead times as “stable” in June, up from 47% in May. The share reporting “extending” lead times fell to 19% from 47%, while no respondents reported “shrinking” lead times, down from 6% in May.

The June stable reading marked the highest share in the survey’s history, but the absence of shrinking responses was not new. April also had no shrinking responses.

The results showed respondents moving from a May split between stable and extending lead times toward a more concentrated, stable reading in June.

Scrap recyclers and processors showed one of the more significant shifts in lead time sentiment month over month. In May, the subcategory split evenly between stable and extending lead times. In June, every scrap recycler and processor reported stable lead times.

The remaining extending responses came from manufacturers & assemblers and distributors & traders. Producers also did not report extending lead times in the most recent survey.

Broken down by company role, it could be inferred from June’s results that remaining lead-time pressure seems more concentrated downstream or in physical trading channels rather than upstream or in scrap processing.

Measured lead times

Measured lead times generally moved in the same direction as the qualitative responses, though the shift wasn’t uniform across product types.

Average sheet lead times declined to 7.5 weeks in June from 8.0 weeks in May, while primary lead times fell by about a week to 6.3 weeks. Extrusion lead times increased slightly to 7.0 weeks from 6.8 weeks month over month.

Sheet

Within sheet products, common alloy sheet lead times declined to by about a quarter week to just over 8 weeks, while auto body sheet lead times fell to 7.5 weeks. Can sheet moved higher by a little more than half a week to 6.6 weeks.

Since the May survey, Novelis resumed operations at its Oswego hot rolling mill, returning additional domestic auto body sheet rolling capacity to the market.

Primary

Primary aluminum recorded the largest month-over-month change, as P1020 and high-purity ingot lead times declined nearly two weeks to 6.3 weeks. The drop in P1020 lead times was large enough to pull the overall primary average lower.

The decline in P1020 and high-purity ingot lead times coincided with a shift in the geopolitical situation in the Middle East. In June, the US and Iran moved toward negotiations aimed at de-escalating the conflict, and reports indicated some resumption of commercial vessel traffic through the Strait of Hormuz.

The survey doesn’t establish a direct relationship between those developments and lower lead times. That said, earlier in the conflict, market participants rushed to secure alternative supply sources amid uncertainty surrounding Middle Eastern exports. By June, some of that urgency may have subsided as supply disruption concerns eased.

At the same time, producers in the Gulf region were reportedly prioritizing production and sales of primary metal over certain value-added products during the disruption period. P1020 can be hedged through contracts traded on exchanges such as the London Metal Exchange and the Shanghai Futures Exchange, providing producers and consumers with greater risk management flexibility than many semi-fabricated products.

Conversely, billet remains heavily exposed to physical trade flows and regional supply chains. The US continues to rely on imports for a substantial share of its billet requirements. Primary billet (6063 and 6061) lead times rose to 6.25 weeks in the June survey.

Nevertheless, respondent commentary suggested market participants do not view the effects of the Middle East disruption as fully reflected in current market conditions. Several respondents indicated the consequences of reduced regional production, altered trade flows and earlier shipping disruption may not yet have fully worked through the supply chain.

Extrusions

Extrusion lead times remained comparatively steady. Lead times for both 6063 and 6061 mill finished extrusions were 7 weeks.

June marked an increase in 6063 mill finished extrusion lead times, while 6061 mill finished extrusion lead times remained unchanged. Despite the divergence, extrusion lead times have generally remained within a 6-to-7-week range since February, both as an overall category and across individual product segments.

Inventory positioning

Inventory responses also moved toward steadier positioning in June from the prior month.

The share of respondents “building” inventories fell to around 10% in June from 18% in May. Meanwhile, respondents “keeping steady” inventories increased to 67% from 59% and the share “drawing down” inventories was little changed at around 24%.

Respondents appeared less inclined to add inventory than they were a month earlier, while most continued holding current positions.

The scrap recycler and processors subgroup moved out of inventory building entirely. In May, 17% of recyclers were building inventory, 67% were keeping inventory steady and 17% were drawing inventory down. By June, no recycler respondents were building inventory, 67% were keeping inventory steady and 33% were drawing down inventory.

Scrap recycler and processor breakdown of inventory responses lines up with the lead time responses. Recyclers moved from a split view on lead times in May to unanimous stable lead times in June, while also reporting no inventory building in June. While it doesn’t show excess supply per se, it does show less precautionary behavior among recyclers than in May.

Manufacturers & assemblers accounted for all of the inventory building responses in June. The subgroup also remained one of the main sources of extending lead time responses, although distributors & traders reported a share of the extending lead time responses as well.

Overall demand

The largest movement in month-over-month responses came from the drop in improving demand, not from a broad shift into declining demand. June demand sentiment moved away from May’s unusually high improving share and toward a more mixed reading.

The share of respondents reporting “improving” demand fell to 35% in June from 67% in May, while “stable” demand rose to 48% from 28%. Meanwhile, the share reporting “declining” demand increased to 17% from 6% month over month.

Responses from scrap recyclers and processors shifted sharply. The share reporting improving demand fell to 14% in June from 67% in May, while stable demand increased to 71% from 33%. No recyclers reported declining demand in May, compared with 14% in June.

Manufacturers & assemblers remained comparatively more positive. Half reported improving demand in June, while 38% reported stable demand and 12% reported declining demand.

The demand responses provide a possible interpretation for the lead time and inventory changes. Before looking at demand, lower extending lead time responses could have pointed mainly to better supply availability.

With the shifts in demand perspective, the explanation becomes less one-side, as it seems demand growth sentiment also moderated.

Three-month market balance

Responses to the three-month market balance question did not move as much as those for the demand, inventory or qualitative lead time questions.

In June, 50% of respondents expected the market to be “balanced” three months forward, up only slightly from 47% in May. The share expected an “undersupplied” market fell to 36% from 41%, while the “oversupplied” share increased to 14% from 12%.

Given the modest changes relative to the shifts in other response shares, the result suggests respondents saw softer current conditions in June without broadly moving toward an oversupplied three-month view.

A market can move away from tightness without moving into oversupply, and the June balance appears to reinforce that middle ground.

Scrap recycler and processor responses moved further toward balance, rising to 57% from 50% in May. Meanwhile, the share of undersupplied responses dropped to 14% from 33% over the same period and oversupplied responses accounted for 29% of responses, up from 17%.

Manufacturers & assemblers did not report oversupply. About 62% expected a balanced market and 38% expected an undersupplied market.

Distributors & traders carried the larger share of tightness signals. About 60% expect an undersupplied market, while 20% expect a balanced market and 20% expect oversupply.

The distribution of distributor & trader responses is difficult to square with the cohort’s mixed demand responses and larger share of inventory drawdown responses. The group’s view may result from product-specific or customer-specific conditions rather than a single broad market read.

Putting it together

The main competing narrative from the June data is that improving current demand fell to 35% from 67% the month prior, while 36% still expected an undersupplied market three months forward. Respondents became less positive on current demand, but they did not broadly conclude that supply would exceed demand by later summer.

Nonetheless, several indicators that pointed toward increasing tightness in May moderated in June. The share reporting extending lead times fell sharply, inventory building declined, and improving demand dropped materially.

At the same time, measured lead times either declined or stabilized across most product categories, particularly in primary aluminum. Yet respondents did not broadly shift toward expectations of oversupply.

Throughout the survey, recyclers reported stable lead times, no inventory building, and mostly stable demand. In other words, the subcategory didn’t move uniformly negative, but it did move away from the more expansionary posture seen in May.

Meanwhile, manufacturers & assemblers remained the most positive subgroup across demand, inventory and lead time sentiment, suggesting that pockets of firmness remain further downstream in the supply chain.

Even as respondents became less optimistic about current conditions, they didn’t broadly infer that supply would exceed demand in the months ahead.