The US manufacturing economy has seen resounding growth in the first quarter of 2021.  The Institute for Supply Management reported in early April that the index of national manufacturing activity jumped from 60.8 in February to 64.7 in March.  An index above 50 indicates expansion, and this is the highest level since late 1983.[1] The manufacturing boom has not been without issues, particularly those created in a raw materials supply chain that was caught unprepared for the drastic spike in demand.

This post will examine some aspects of the global aluminum supply chain as they apply to the domestic manufacturing industry, the following subjects in particular:

• Pricing trends
• Supply Chain
• Transportation
• Packaging

Pricing Trends

Both the London Metal Exchange and US Midwest Transaction aluminum prices continued to rise through the first quarter of this year; here are month by month prices as well as a six month graphic:

LME Q4                   LME Q1

10/20  .93886          1/21    .909

11/20  .87369          2/21    .943

12/20  .91531          3/21    .994

 

MW Q4                    MW Q1

10/20  .93886          1/21    1.059

11/20  1.00628        2/21    1.099

12/20  1.05707        3/21    1.183



In addition, supplier mills have raised costs since late last year.

• Domestic cast plate suppliers have imposed dramatic increases on cast tooling plate as well as 2XXX & 5XXX cast mold plate.
• Domestic extrusion mills have also raised their pricing and their lead times have doubled.
• Foreign wrought plate mills (i.e., Russia, Austria) have either raised their pricing or reported that a price increase is forthcoming,

Supply Chain

• A large foreign supply source, Russian AS Mill Products, has suffered a fire at their production mill KUMZ (Kamensk-Uralsky Metallurgical Works) that has idled one of their two rolling mills.  This has adversely impacted the global supply and the mill will not be back in production until September.
• There are pending anti-dumping duties from the European Union for aluminum products from China.  These are expected to be enacted and European industry is switching their sourcing to mills in the United States, Russia, Europe, South Africa, etc.  This is putting additional stresses on global production capacity.

Transportation

There has been heavy congestion at all US container terminals causing a backlog of vessels waiting to be unloaded and anchored around our port cities.  The situation has made it extremely difficult for the shipping companies to pull the empty containers out and they are accumulating at US ports.  The result is a global shortage of containers; the freight lines are increasing their rates 70-120% and charging their clients for container demurrage in the States.

Shipments from Russian and European mills have been affected as there is no space on US bound vessels until May or June from the ports of Rotterdam, Antwerp or Hamburg.  While the congestion in Canada is not as severe as that in the US, there is talk of a longshoreman’s strike there that has caused freight lines to be wary of using the option.

The domestic aluminum suppliers to the semiconductor industry in Korea, Singapore and Malaysia haven’t been able to secure container transportation to these markets.  Chinese interests are paying double whatever the market rate is to get empty containers out of west coast US ports, and this is draining the supply of available vessels.  As an aside, this is contributing to the global shortage of microprocessor chips and creating additional delays for industries that depend on them such as automotive.

Packaging

Anyone using wood for skid or crate packaging is familiar with the price increases for those products.  The reasons given have ranged from increased home renovation activity to a Canadian timber pest infestation and lower interest rates spurring new home builders to increase production.[2] [3]  Whatever the cause, packaging charges are increasing for suppliers and customers using wood as their primary material of choice.

The domestic and global industrial growth of the first quarter of this year is a welcome development after the COVID-19 epidemic and accompanying economic downturn.  It has not come without an adverse effect on worldwide supply chains.  These situations are temporary in nature; as inventories return to required levels and demand is met throughout the marketplace, the current lag in raw materials production and the logistics network will subside.

 

[1] https://www.cnbc.com/2021/04/01/ism-manufacturing-march-2021.html

[2] https://fortune.com/2021/03/20/lumber-prices-2021-chart-when-will-wood-shortage-end-price-of-lumber-go-down-home-sales-cost-update-march

[3] https://qz.com/1985276/america-is-running-short-of-wood