We are now into September and I hope you had an enjoyable Labor Day weekend. Labor Day is celebrated in both the US and Canada on the 1st Monday of September and exists to honor and recognize the works and contributions of laborers to the development of these nations. With that said, there are a few labor disputes that are worth monitoring this September as they can have some major impacts on aluminum pricing and ability to move material. I am referencing, of course, the Canadian Rail Strike and the International Longshoremen’s Association (ILA) potential work stoppage. Let’s dig in a little bit on both.
In case you aren’t up to speed, nearly 10,000 union engineers, conductors, and dispatchers that work Canada’s largest freight railroads were locked out on 8/22 after Canadian National (CN) and Canadian Pacific Kansas City Southern (CPKC) reached an impasse in contract negotiations with the union. Shortly thereafter, the Canadian government intervened, forcing the laborers back to work pushed the rail line/union dispute into arbitration citing that a stoppage posed significant disruptions to both the US and Canadian economies. The union just filed lawsuits against the back-to-work orders stating that these orders eliminate union leverage capabilities. So why is this meaning full? Each day, more than $730 million worth of goods are moved between these two countries. And the reason I’m writing about it is because about 40% of the primary aluminum used in the US from Canada and is moved via rail. This equates to approximately 17.5 million lbs. of primary aluminum daily, not to mention all the aluminum scrap that is moved intermodal into the US. While trucking could step in to service some of the critical products there would still be temporary outages as new logistical lanes were developed. Furthermore, any halt on this front would drive additional costs into the material and result in a short term spike in the Midwest Premium.
The other potential labor dispute would impact all Atlantic and Gulf port operations. The International Longshoreman’s Association current contract is set to expire on Sept 30 and the ILA has currently suspended any negotiations meaning partial or full stoppages at ports could take effect starting Oct 1. Metal scrap would be considered the lowest priority cargo meaning rates could skyrocket and space will be constrained. These standoffs which happen every handful of years don’t usually get resolved until the 11th hour meaning that regardless of a work stoppage, there should be significant slowdowns of material coming into or going out of these ports for weeks ahead of time to ensure potential detention/demurrage charges for containers are avoided. Historically, each day of shutdown takes about 6 days to recover, so any stoppage could have massive impacts on aluminum’s ability to come into or leave the East Coast or Gulf Region.
In August, aluminum prices rose nearly 10c throughout the month primarily thanks to a weak dollar in thin trading as the Fed is set to cut rates in September. While the prospects of lower borrowing costs are exciting and welcomed, we are still currently seeing and dealing with pullbacks in demand. The auto market is shaping up for a soft September and I am hearing many common alloy and billet producers are running below 75% capacity due to softer demands. All this amid fresh concerns about China’s economy and how bad things actually are seem to be taking hold. We started seeing some LME pullbacks toward the end of the last month that I suspect will persist in September. Contracts talks for 2025 will start later this month in Chicago but I don’t foresee anything starting to take shape until late October as I believe there will be fundamental differences in how scrap suppliers and consumers see the aluminum markets shaping up for next year.
A major shout out to Schupan’s Logistics and Internal teams for keeping me well informed on the labor disputes. If you are looking for some scrap aluminum prices (domestic or export), please reach out to me at 440-813-6325 or michael.anderson@schupan.com. Additionally, would love to hear your feedback on the column, good, bad, or indifferent.
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