Commodities markets move so swiftly it can be difficult to step back and put current conditions into perspective. Participants are prone to virtual whiplash from volatile price movements, whether up or down – but particularly when markets are still riding the proverbial rollercoaster.

That’s especially apparent now, with the impact of the coronavirus pandemic on global commodities and many reaching their lowest price levels in years, if not decades. However, the fallout goes beyond pricing.

Take the aluminum market, for example. Automotive and aerospace sector shutdowns have dampened aluminum demand projections for 2020. Domestic shipments of aluminum mill products and foundry castings to the auto and light truck sector alone were 6,242 million lb in 2018, or about 25% of total US aluminum demand, according to the Aluminum Association.

A minimum two-week shutdown, as was announced by several auto producers last month, would equal about 240 million lb of lost shipments – not a good start to the year for a market segment expected to be flat at best in terms of 2020 sales.

Some aluminum end-users also have had to shutter facilities temporarily, as many states enforce “non-essential business” closures.

Aluminum boost from quarantine supplies
One bright spot has been the canned beverage sector, particularly the alcoholic segment, as people settle in for an extended quarantine. According to widely reported data from Nielsen, alcoholic beverage sales were up 55% year on year for the week ended March 21. Ready-to-drink cocktails saw sales increase 106%, and 24-to-30-pack beer sales were up by about 90% on year for the same period, according to the data.

All this comes at a time when the US Midwest P1020 transaction premium, which S&P Global Platts assesses, was at 10.5 cents/lb on April 8. The all-in delivered US Midwest transaction price – which includes the LME cash-settled price, plus the Midwest premium – was down nearly 33% from the start of 2018, at 74.978 cents/lb on April 8.

January 2018 was the last time the Midwest premium, which reflects market dynamics ranging from supply and demand to delivery and logistics costs to trade and labor issues, was as low as 10.5 cents.

For perspective, that’s when the Trump White House tell-all book “Fire and Fury” had just been published, California became the largest US state to legalize cannabis for recreational use and American political circles were rife with rumors of a possible Oprah Winfrey presidential bid.

A short time later, the Trump administration imposed a 10% tariff on primary aluminum imports, as well as sanctions on Russian aluminum producer Rusal. Both of those factors helped push up the Midwest premium to a multi-year high of 22.5 cents/lb in April 2018.

The US market digested the tariffs and other developments over time, eventually taking the premium back down to more typical historical levels. Today, Canada, Mexico and Australia are exempt from the tariffs, while Argentina has quotas in place. Rusal also is no longer subject to sanctions. Still, more than 27% of the aluminum that the US imports remains subject to tariffs, compared with an estimated high of 86% early last year.

It remains to be seen whether the Midwest premium will rise again to the levels seen in the wake of the import tariffs or if it will continue to hover near historical lows.

What is certain is that commodities markets – aluminum included – will continue to react to market forces, no matter if those forces come in traditional forms, like supply and demand, or as viruses that grip the globe. And that’s not just a matter of perspective.