Capral is providing this letter to help explain the unprecedented increase in global aluminium prices experienced in 2021, and to provide early advice of further increases continuing into 2022.
Pricing components of aluminium extrusion billet
LME is the market traded price of aluminium on the London Metal Exchange and is used globally (outside of China) as the primary cost of Aluminium. LME prices are currently at 10-year highs driven by:
Strong global demand for aluminium as economies rebound from COVID
Escalating costs of key raw materials; bauxite, alumina, silicon and magnesium
Reduced Chinese aluminium smelting capacity in response to environmental pressures
Aluminium extrusion manufacturers, including Capral, purchase billet from primary aluminium smelters in Australia and internationally. While LME is the largest cost component it represents only part of the total billet purchase price. Smelters add the following premiums for extrusion billet supply:
Regional premium (Asia/Pacific region benchmark is the Major Japanese Ports or ‘MJP’).
Base billet (product) premium, which includes the additional costs incurred to produce billet.
Surcharges for freight, alloy, diameter may also apply.
Total Billet Price = LME + MJP premium + Base billet premium + Surcharges
LME prices are adjusted monthly, MJP premiums are adjusted quarterly, and Base billet premiums and surcharges are adjusted annually.
Base billet premiums
Over the past decade base billet premiums have been stable due to a reasonable supply/demand balance for billet. The situation has changed dramatically for 2022. Global demand for billet in 2022 has outstripped supply and has led to up to 350% increases in premiums for 2022 smelter supply contracts.
Click to download the letter from Capral’s main supplier, Rio Tinto, which outlines the key drivers for the current escalation in LME and 2022 premiums.
The significant increase in smelter base billet premiums for 2022, together with other inflationary cost pressures, unfortunately, leaves Capral no option but to increase its price spreads. Therefore, effective 1st February 2022, Capral will be increasing all base spreads. We are currently finalising contracts and assessing the impact of the higher LME and premiums on net scrap costs. These will be confirmed within the next two weeks, but we anticipate spreads to increase between $0.40kg – $0.55kg.
Find more information on international price increase regarding the low Magnesium availability Read more here
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