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Aluminum Highlights Week Ending: March 18, 2016

An update on Industry activity and economic indicators

The LME cash to 3-month spread that was in backwardation for most of 2016 returned to contango recently. When the market is in backwardation, this puts pressure on those that are holding inventories, as it becomes an additional cost to carry metal, not a subsidy as it is in a contango. As such, the backwardation squeezed those carrying aluminium stocks forward that needed to roll their spot LME hedges. Also, since typical sources of lending liquidity for LME borrowers – long only index funds – have decreased, this forced some who were short to either deliver their metal back to the LME or un-cancel warrants that were in the queue. During the time of the backwardation, LME stocks increased by over 135,000t, the Midwest premium dropped from 9.2¢/lb to 8¢/lb, and the LME 3-month price rose by over $120/t. During this time, LME CoT data show that Money Managers reduced their short positions by 17%, which bolstered the price rally. However, since long positions also fell during this time, at a greater rate than short positions, this caused the net-long position of Money Managers to decline. This is counter-intuitive to a price rally, and indicates how long-term investors did not buy into the short-covering rally. It also explains how prices started to drop again on March 8, once the short-covering stalled. Meanwhile, the nearby LME cash to 3-month spread returned to contango on March 10. After which, LME aluminium stocks have declined by 38,000t, LME aluminium cancelled warrants rose by 335,000t, and the net-long position of Money Managers continued to fall (but this time due to an increase in short positions in addition to a decline in long positions). As such, the LME 3-month price dropped to test a significant level of support at $1,510/t recently. Interestingly, the Midwest premium continued to decline after the backwardation ended, to 7.75¢/lb, despite the return of a contango market, falling stocks, and rising cancellations.

Market View By: Mike Southwood, Senior Consultant – CRU Price Risk Management

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

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2 Industry Activity

March 14 – Estimated net shipments of Aluminum Sheet and Plate by U.S. and Canadian producers totaled 682.0 million pounds during February 2016, an increase of 6.3 percent over the February 2015 total of 641.6 million pounds. Compared to the previous month, shipments rose 2.9 percent over the January 2016 total of 662.8 million pounds. Year-to-date shipments through February 2016 totaled 1,344.7 million pounds, up 1.1 percent over the year-to-date 2015 total of 1,330.5 million pounds. Shipments of Can Stock totaled 339.3 million pounds during February 2016, up 6.8 percent over the February 2015 total of 317.6 million pounds, while shipments of Non-heat Treatable Sheet (excluding Can Stock) were down nine-tenths of one percent to 223.2 million pounds and shipments of All Other Sheet and Plate increased 21.1 percent to 119.5 million pounds.

March 14 – Estimated shipments of Aluminum Foil by U.S. and Canadian producers totaled 79.3 million pounds during February 2016, a rise of 6.4 percent over the February 2015 total of 74.6 million pounds. Compared to the previous month, shipments increased 7.6 percent over the January 2016 total of 73.7 million pounds. Year-to-date shipments through February 2016 totaled 153.0 million pounds, up 5.2 percent over the 2015 year-to-date total of 145.4 million pounds.

March 18, 2016

March 14 – Shipments of can stock by domestic producers totaled 339.3 million pounds during February 2016, an increase of 6.8 percent from the February 2015 total of 317.6 million pounds. Compared to the previous month, shipments rose 1.8 percent over the January 2016 total of 333.3 million pounds. Year-to-date shipments through February 2016 totaled 672.6 million pounds, up three-tenths of one percent over the 2015 year-to-date total of 670.5 million pounds. Compared to February 2015, producer shipments of can stock to U.S. markets increased 6.6 percent to 285.1 million pounds, while exports were up 8.2 percent to 54.2 million pounds.

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3 Industry Activity Cont…

March 17 – Shipments of Aluminum Powder and Paste to domestic markets by domestic producers, including imports by domestic producers, totaled 5.74 million pounds during February 2016, a decrease of 27.9 percent from the February 2015 total of 7.97 million pounds. Compared to the previous month, shipments rose 2.5 percent over the January 2016 total of 5.60 million pounds. Year-to-date shipments through February 2016 totaled 11.35 million pounds, down 33.5 percent from the year-to-date 2015 total of 17.05 million pounds. Compared to February 2015, shipments of powder to domestic markets dropped 31.2 percent to 4.90 million pounds, while shipments of paste were unchanged at 0.85 million pounds.

March 15 – New can stock (class) scrap receipts totaled 55.0 million pounds during February 2016, a rise of 3.5 percent over the February 2015 total of 53.1 million pounds. Compared to the previous month, class scrap receipts were off 1.3 percent from the January 2016 total of 55.7 million pounds. Year-to-date class scrap receipts through February 2016 totaled 110.7 million pounds, up three-tenths of one percent over the 2015 year-to-date total of 110.4 million pounds.

March 18, 2016

March 17 – Estimated shipments of Aluminum Forgings and Impacts by U.S. and Canadian producers totaled 25.7 million pounds during February 2016, an increase of 5.1 percent over the February 2015 total of 24.4 million pounds. Compared to the previous month, shipments were down 2.5 percent from the January 2016 total of 26.3 million pounds. Year-to-date shipments through February 2016 totaled 52.0 million pounds, up nine-tenths of one percent over the 2015 year-to-date total of 51.6 million pounds.

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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4 Industry Activity Cont…

March 15 – The Producer Price Index for final demand (which includes goods and services) decreased two-tenth of one percent in February, seasonally adjusted, the U.S. Bureau of Labor Statistics reported. Final demand prices increased one-tenth of one percent in January and decreased two-tenths of one percent in December 2015. The index for final demand goods declined six-tenths of one percent and final demand goods less foods and energy increased one-tenth of one percent. On an unadjusted basis, the final demand index was unchanged for the 12 months ended in February.

March 18 – Estimated shipments of Aluminum Drawing Stock, Bare Wire and Rod & Bar by U.S. and Canadian producers totaled 93.1 million pounds during February 2016, a decrease of 10.5 percent from the February 2015 total of 104.1 million pounds. Compared to the previous month, shipments were down 4.4 percent from the January 2016 revised total of 97.4 million pounds. Year-to-date shipments through February 2016 totaled 190.6 million pounds, off 8.4 percent from the year-to-date 2015 total of 208.0 million pounds.

March 18, 2016

March 18 – Shipments of Aluminum Extruded Products (extruded shapes, pipe & tube, and rod & bar) by U.S. and Canadian producers totaled an estimated 433.4 million pounds during February 2016, an increase of 7.3 percent over the February 2015 revised total of 403.9 million pounds. Compared to the previous month, shipments rose 3.3 percent over the January 2016 total of 419.5 million pounds. Year-to-date shipments through February 2016 totaled 852.8 million pounds, up 3.3 percent over the year-to-date 2015 total of 825.8 million pounds.

Economic Activity

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5 Economic Activity Cont…

March 16 – The U.S. Census Bureau and the Department of Housing and Urban Development jointly announced that privately-owned housing starts in February 2016 totaled an estimated 1,178,000 units, up 5.2 percent over the revised January 2016 rate of 1,120,000. Compared to a year ago, housing starts were up 30.9 percent over the February 2015 rate of 900,000. Single-family housing starts in February were at a rate of 822,000, up 7.2 percent over the revised January figure of 767,000. The February rate for buildings with five or more units was 341,000, up 2.4 percent over the revised January estimate of 333,000. Through the first two months of 2016, privately-owned housing starts were up 15.2 percent over the same period in 2015.

March 16 – The U.S. Consumer Price Index for All Urban Consumers (CPI-U) declined two-tenths of one percent in February on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported. This followed last month's reading in which the index was unchanged m/m. The core consumer prices (index for all items less food and energy) rose three-tenths of one percent, the same increase as the prior month. The unadjusted all items index was up 1.0 percent over the last 12 months, while the core price index has increased 2.3 percent over the same period.

March 18, 2016

March 16 – The Federal Reserve Board announced that U.S. industrial production decreased five-tenths of one percent in February after increasing eight-tenths of one percent in January (r). Manufacturing output was up two-tenths of one percent in February, following an increase of six-tenths of one percent in January (r). Compared to last year, manufacturing output in February was up 1.8 percent, while the production of durable goods and nondurable goods were up 1.6 percent and 2.1 percent, respectively. At 106.3 percent of its 2012 average, total industrial production in February was 1.0 percent below its year-earlier level. Capacity utilization for the industrial sector decreased four-tenths of one percentage point in February to 76.7 percent, a rate that is 3.3 percentage points below its long-run (1972–2015) average.

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6 Economic Activity Cont…

March 17 – The U.S. Energy Information Administration reported that natural gas prices increased at virtually all spot market locations this report week (Wednesday, March 9, to Wednesday, March 16). The Henry Hub spot price rose from $1.57 per million British thermal units (MMBtu) last Wednesday to $1.74/MMBtu. At the New York Mercantile Exchange (Nymex), the price of the near-month futures contract rose from $1.752/MMBtu last Wednesday to $1.868/MMBtu.

March 16 – The U.S. Census Bureau and the Department of Housing and Urban Development jointly announced that privately-owned housing units authorized by building permits in February were at a seasonally adjusted annual rate of 1,167,000. This is 3.1 percent below the revised January rate of 1,204,000, but 6.3 percent above the February 2015 estimate of 1,098,000. Single-family authorizations in February were at a rate of 731,000; this is four-tenths of one percent above the revised January figure of 728,000. Authorizations in buildings with five units or more were at a rate of 401,000 in February, down 9.1 percent from last month. Through the first two months of 2016, housing units authorized by building permits totaled 158,600, up 7.5 percent over the same period in 2015.

March 18, 2016

March 18 – Preliminary data published by Ward's Automotive show that North American (Canada, Mexico, and the United States) light vehicle production totaled 1.52 million units during February 2016, up 12.6 percent year over year. U.S. production increased 16.4 percent y/y, while Mexican and Canadian production decreased 3.9 percent and increased 20.2 percent, respectively. Production of medium and heavy trucks totaled 39,287 units in February, down 2.9 percent from a year ago. Through the first two months of 2016, light vehicle production in North America was up 7.4 percent over last year, with the U.S. up 8.7 percent. At the same time, Mexican and Canadian production was down 1.7 percent and up 15.1 percent, respectively. Year-to-date medium and heavy truck production was down 2.6 percent from last year.

Energy

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7 Energy Cont…

March 18 – On the NYMEX, near-month WTI crude oil futures (Cushing, OK WTI Future Contract 1) closed the week at $39.44/bbl on Friday, March 18, up $0.95 (+2.5%) from last week's close of $38.49/bbl. After surpassing the $40/bbl mark for the first time in 2016 on Thursday, crude oil futures were pressured lower on Friday after the number of active U.S. oil-drilling rigs increased for the first time in 13 weeks. Active U.S. oil-drilling rigs increased by 1 to 387. Compared to last year, oil rigs have fallen by 438. Despite the drop on Friday, crude oil futures still increased for the fifth consecutive week, and are up more than 35 percent m/m. Brent Crude on London's ICE Futures exchange closed the week up to $40.39/bbl (+4.3%). Friday's spread between the two was at $1.90/bbl, compared to last week's close of $2.80/bbl.

March 18, 2016

March 18 – According to this week's release by the Federal Reserve Board, the Nominal Broad Dollar Index closed the week at 120.00 on Friday, March 18, down 1.2 percent from the Friday, March 11th close of 121.42. This followed last week's reading in which the index fell six-tenths of one percent. The Index has now fallen in four of the last five weeks. Over the last six months the index is up six-tenths of one percent, while it is up 2.5 percent over the last year. 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.

U.S. Dollar

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8 The 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 Overview Aluminum Statistical Review (Annual Fact Book) Aluminum Highlights (Weekly) Aluminum Situation (Monthly) Summary of Producer Shipments and Inventories (Monthly) Primary Aluminum Primary Aluminum Production – U.S. and Canada (Monthly) Primary Installed Capacity (Annual) Shipments of Primary Aluminum by Form (Quarterly) Mill Products Index 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 Use Extrusion 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) Castings U.S. Foundry Castings Shipments (Quarterly) Canada Foundry Castings Shipments (Annual) Recycling New 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), Monthly Foreign 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.

March 18, 2016