Cost-strapped aluminum companies struggled to contain potential increases in calcined petcoke prices in April following supply-side disruptions due to oil refinery production cuts.
The most significant supply impact was a declaration of force majeure for P66′s Humber oil refinery in the UK, which supplies around 400,000 mt/year of low-sulfur CPC primarily for the European market.
P66 sent the notice to aluminum customers last week, saying the three-month force majeure was the result of the “sudden and substantial reduction in demand for petroleum products in the United Kingdom and globally” which hindered the safe operation of Humber.
The company’s overall planned CPC production is reduced by 10%-20% for the rest of the year, and the “quantity of regular calcined coke available [under contracts] … during this period is anticipated to be reduced proportionately,” P66′s notice said.
A P66 spokeswoman said the company does not comment on commercially sensitive matters.
The P66 force majeure followed a similar move by Brazil’s Petrocoque to postpone shipments until late-May and declare FM on one shipment (“Oil refineries reduce CPC shipments to aluminum buyers,” Apr 17, 2020).
Indian calciners also lost CPC output when they were forced to shut down for a short time due to confusion over whether they were essential businesses or not under conditions of pandemic-related shutdowns. Rain Carbon’s Indian calciner lost around 45,000-50,000 mt of CPC output, sources close to the company estimated.
OTHER REFINERS SEE LESS IMPACT
Other refiners supplying CPC, however — including Norway’s Equinor, BP in Europe and the US, and OMV in Europe — have mostly maintained their shipments to aluminum users, smelter buyers and refinery sources said.
“When we look at Equinor, I don’t see any issue there; to the contrary I think they have more than enough,” one aluminum buyer said. “And I see the same pattern for Southern Europe and Germany.”
While one buyer heard BP’s availability was affected, two other buyers and a refiner source said BP would meet its commitments in the US and Europe.
Nevertheless, the P66 curtailments caused some buyers to seek spot quotes, supporting efforts by refiners and calciners to raise offer levels.
“Smelters are building up inventories as kind of a buffer, trying to mitigate any potential disruptions as much as possible,” said a calciner source. He also noted that despite smelter cutbacks, there have been demand additions this year, such as from the 450,000 mt/year Aluminerie de Becancour smelter in Quebec which was largely idled and out of the market for most of last year.
He had seen three spot inquiries from buyers in Europe, South America and India.
A second refiner had also seen inquiries for Europe, but said he was probably only able to meet spot demands for 2,000-3,000 mt.
“Everyone has enough product for now,” but “the demand crunch could be in Q3 because of P66,” he said. “It will definitely influence the availability.”
P66 has told buyers the CPC shipment constraints mainly affect June-August.
Q3 HINGES ON CALCINER, SMELTER CUTS
A third refiner also noted calciners running rotary kilns had flexibility, whereas smelters could try to avoid shutting by storing metal or putting it on the London Metal Exchange. Aluminum buyers agreed that, absent curtailments, the most that smelters could reduce output by reducing amperage or potline maintenance might be 10%.
Several aluminum buyers, for their part, reported being oversupplied on CPC, to the point where they are trying to push back their offtake from some suppliers.
“Every day we are going through inventory,” said one smelter buyer, who said his company had shifted more aluminum output to P1020 and was putting it on the LME.
Smelters have also canceled orders for anodes, and the Aluchemie anode plant in Europe is undertaking a planned cutback this year of two of five furnaces. One of the buyers said his company had suspended deliveries of anodes from China for the second half.
He thought the fact that any calciner could supply an extra 50,000 mt of CPC pointed to the fact that the market was still oversupplied. He said green coke supply “at the end of the day matters only if the market is balanced.”
Chinese calciners are also much less likely to reduce output given the high cost of restarting shaft kilns.
Some buyers argued that Q2 was too soon for any price increases, since calciners were working off green petcoke supplies they had already fallen by 8% in Q1, and analysts see potential aluminum surpluses of 1.5 million mt to 5.5 million mt in 2020, Norwegian producer Hydro reported.
At the moment,”The sell side has a better argument for raising prices, and the smelters have a weaker argument for lowering them,” a trader concluded, pointing out that when LME aluminum was last below $1,500/mt, the supply of GPC and CPC was not as constrained.