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Aluminum Highlights

Week Ending: February 3, 2017An update on Industry activity and economic indicators

Market ViewBy: Jesús Villegas, Vice President, Aluminum Analysis – HARBOR Aluminum

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

The United States imported a record-high volume of unalloyed aluminum units in Jan-Nov 2016.

US imports of unwrought unalloyed aluminum units (includes P1020 and purity) increased in Jan–Nov 2016 by 58% y/y to 2.03 million mton. For such time frame, this was the highest volume on record.

Overall, the North America region remains the most attractive destination for P1020 aluminum units for various reasons: a) regional netback (profitability after logistics costs) stands $20–80 per mton over other regions for most P1020 suppliers worldwide (supported further by rising MW premiums); b) limited spot demand in other major regions and significant oversupply in Asia (confirmed by rising P1020 shipments from Singapore to the US); c) tight LME spreads forcing suppliers to look for a home for their units; and d) a strong US dollar.

In fact, HARBOR estimates that North American stealth (unreported) P1020 stocks increased in January to a fresh record high of 1.5 million mton. Despite falling regional primary production, this trend remains driven by record-breaking import volumes of unalloyed units from various traditional and non-traditional origins.

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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2Industry Activity

February 3, 2017

January 30 – Aluminum net shipments (including exports) by domestic U.S. and Canadian facilities totaled an estimated 1,712 million pounds during December, down 1.9 percent from the December 2015 total of 1,746 million pounds. Shipments of aluminum mill products decreased 2.8 percent from the previous year to 1,110 million pounds. For the year, mill product shipments were off three-tenths of one percent. Shipments of aluminum ingot for castings, exports and destructive uses decreased by four-tenths of one percent year-over-year in December, but for the year they increased 5.8 percent over 2015. Preliminary producer shipments in 2016 totaled 23,422 million pounds, up 1.6 percent over last year. December inventory levels totaled an estimated 3,089 million pounds, up 10.6 percent over the previous month and up 2.9 percent year-over-year.

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3Economic Activity

February 3, 2017

January 31 – Statistics Canada report that real GDP in Canada increased four-tenths of one percent in November, following a two-tenths of one percent decrease in October. The output of goods-producing industries rose by nine-tenths of one percent, while service-producing industries edged up two-tenths of one percent. Total manufacturing output increased 1.4 percent, as both durable and non-durable goods manufacturing increased. Durable-goods manufacturing was up 1.3 percent, with the largest contributions coming from manufacturers of machinery, computer and electronic products and primary metals.

January 31 – Statistics Canada report that Canada’s Industrial Product Price Index (IPPI)increased four-tenths of one percent in December (112.1), after increasing four-tenths of one percent in November. The main reason for the increase in December was higher prices for energy and petroleum products (+5.5%), which posted their largest gain since May 2016 when prices rose 6.6%. The IPPI excl. energy and petroleum products declined four-tenths of one percent. Alumina and aluminum production prices increased two-tenths of one percent over November, and are up 2.3 percent over a year ago. The overall IPPI rose 2.2 percent during the 12-month period ending in December, following a 1.5 percent increase in November.

February 1 – Preliminary data published by Ward's Automotive show that actual U.S. light vehicle sales totaled 1.14 million units during January 2017, down 1.7 percent year over year. While, the pull-ahead effect of holiday promotions in December was not as strong as expected, the average daily sales rate still dropped 23.8 percentbetween the two months. January had 24 selling days this year compared with 24 days in 2016. In terms of the seasonally adjusted annual rate, January reached 17.5 million-units, well below the 18.3 million in the previous month but greater than the 17.4 million year-ago.

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4Economic Activity Cont…

February 3 – Total nonfarm payroll employment increased by 227,000 in January, above the average monthly gain of 186,800 over the prior 12 months, the U.S. Bureau of Labor Statistics reported. The unemployment rate increased slightly over the December rate to 4.8 percent as employment growth occurred in retail trade, construction, and financial activities. Manufacturing employment increased by 5,000 jobs, the sector's second consecutive monthly gain, holding the average monthly change for the sector to a reduction of 3,800 jobs over the last 12 months. In total, manufacturing employment has declined by roughly 46,000 jobs over the last year.

February 3, 2017

February 1 – The U.S. Census Bureau of the Department of Commerce reported that the annual rate of construction spending during December 2016 totaled an estimated $1,181.5 billion, seasonally adjusted, down two-tenths of one percent month-over-month, but up 4.2 percent over the December 2015 estimate of $1,133.7 billion. Residential construction increased four-tenths of one percent over the previous month, totaling a seasonally adjusted annual rate of $473.3 billion. Nonresidential construction was at a seasonally adjusted annual rate of $708.2 billion in December, down seven-tenths of one percent from November, but up 4.6 percent year-over-year. Construction spending in 2016 amounted to $1,162.4 billion, 4.5 percent above the $1,112.4 billion in 2015.

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5Global Trends

February 1 – The headline Markit Mexico Manufacturing PMI registered 50.8 in January. That was up from 50.2 in December, but nonetheless indicative of a marginal rate of improvement that remained noticeably lower thanthe survey’s historical average. Providing some support to the PMI in January were increases in both output and new orders. Output rose modestly after posting a slight fall in December, while there was a similarly-sized increase in new orders. In both cases, the respective indices remained muted by historical standards amid reports of ongoing economic and political uncertainty.

February 1 –The Markit Canada Manufacturing Purchasing Managers’ Index (PMI) registered 53.5 in January, up from 51.8 in December and above the neutral 50.0 threshold for the eleventh consecutive month. Moreover, the headline PMI pointed to the strongest upturn in operating conditions for just over two years. A robust and accelerated expansion of overall production volumes was the key factor boosting the manufacturing sector in January. Higher levels ofoutput have been recorded in each of the past three months, with the latest rise the strongest since December 2014.

February 3, 2017

February 1 – The Markit final U.S. Manufacturing Purchasing Managers’ Index (PMI) registered 55.0 in January, up from 54.3 in December. Data revealed a renewed acceleration in output growth among manufacturing firms, with the rate of expansion reaching its strongest for 22 months. Improving business conditions were also reflected in a sustained upturn in payroll numbers and the steepest rise in stocks of finished goods since the index began in 2007. All five index components exerted a positive influence in the headline PMI in January, led by the sharpest expansion of incoming new work for over two years.

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6Global Trends Cont...

February 1 – The final Markit Eurozone Manufacturing PMI posted at 55.2 in January, up from 54.9 in December, marked improvement inbusiness conditions at eurozone manufacturers.Output growth held steady at December’s 32-month record, underpinned by the strongest inflows of new business and the fastest job creation since the first half of 2011. Price pressures continued to intensify, however, with rates of inflation in input costs and output charges both gathering pace. National PMI data signaled that growth was fastest in Austria, the Netherlands and Germany.

February 1 – The headline Nikkei Japan Manufacturing PMI posted 52.7 in January, up from 52.4 in December, signaling a stronger improvement in operating conditions. In fact, the latest reading was the highest since March 2014, reflecting expansions in output, new orders and employment. Production rose for the sixth consecutive month at the start of 2017. Moreover, the rate of expansion was little-changed from December’s 12-month high. Data also pointed to the sharpest increase in new work inflows since December 2015. Lastly, manufacturers continued to hire additional workers in January. In fact, the rate of job-creation was little changed from December’s 32-month high.

February 3, 2017

February 1 – The Caixin China General Manufacturing PMI posted 51.0 in January to signal a further improvement in the health of the sector. However, the reading was down from December’s 47-month record of 51.9, and was consistent with only a marginal rate of improvement. the rate of improvement slowed since December, as output and new orders increased at weaker rates amid a further reduction in employment. In contrast, new export work rose at the fastest pace since September 2014. At the same time, inflationary pressures remained sharp, with both input costs and output charges increasing at rates scarcely seen throughout the past five years.

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7Energy

February 3 – According to this week's release by the Federal Reserve Board, the Nominal Broad Dollar Index closed the week at 125.28 on Friday, decreasing 1.2 percent from last week's close of 126.84. Last week, the Index declined nine-tenths of one percent. Over the last six months, the index is up 3.2 percent, while it's up 1.7 percent over the last 12 months.

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.

February 3 – On the NYMEX, near-month WTI crude oil futures (Cushing, OK WTI Future Contract 1) closed the week at $53.83/bbl on Friday, February 3, up $0.66 (+1.2%) from last week's close of $53.17/bbl. Oil futures saw a modest gain Friday to finish higher for the week, buoyed by more data backing up production cuts by major oil producers, but prices show little reaction to news that the U.S. has imposed sanctions on Iran. Active U.S. oil-drilling rigs increased by 17 this week to 583, after increasing by 15 the week before. Compared to last year, oil rigs have increased by 116. Brent Crude on London's ICE Futures exchange also closed the week up at $56.81/bbl (+2.3%). Friday's spread between the two was $2.98/bbl, up from last week's spread of $2.35/bbl.

February 3, 2017

February 2 – The U.S. Energy Information Administration reported that natural gas spot prices fell at most locations this report week (Wednesday, January 25 to Wednesday, February 1). The Henry Hub spot price fell from $3.25 per million British thermal units (MMBtu) last Wednesday to $3.12/MMBtu. At the New York Mercantile Exchange (Nymex), the February 2017 contract expired Friday at $3.391/MMBtu. The March 2017 contract decreased to $3.168/MMBtu, down 18¢ Wednesday to Wednesday

U.S. Dollar

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8The 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 OverviewAluminum Statistical Review (Annual Fact Book)Aluminum Highlights (Weekly)Aluminum Situation (Monthly)Summary of Producer Shipments and Inventories (Monthly)

Primary AluminumPrimary Aluminum Production – U.S. and Canada (Monthly)Primary Installed Capacity (Annual)Shipments of Primary Aluminum by Form (Quarterly)

Mill ProductsIndex 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 UseExtrusion 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)

CastingsU.S. Foundry Castings Shipments (Quarterly)Canada Foundry Castings Shipments (Annual)

RecyclingNew 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), MonthlyForeign 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.

February 3, 2017