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Aluminum premiums hit 11-month high

Keywords: Tags  Aluminum, Midwest premium, ingot, P1020, contango, London Metal Exchange, LME, warehouse Suzy Waite

NEW YORK — Midwest spot aluminum premiums moved above 9.5 cents per pound in the past week for the first time in 11 months as consumers were forced to pay more to secure spot metal amid supply tightness.

Spot premiums rose to between 9.25 and 9.65 cents per pound Thursday—the highest level since May 2011—from 9 to 9.5 cents a week earlier, with one trader closing a few atypical deals above the new range.

Consumer interest rose due to a decrease in aluminum prices on the London Metal Exchange while supply remains restricted as the contango on the LME contract continues to keep metal in LME-registered warehouses.

Traders reported solid demand for P1020 in recent days as three-month aluminum prices fell to $2,074.50 per tonne on the LME on Wednesday, down 11.2 percent from the March high of $2,335 per tonne.

"There’s definitely been increased interest this past week. We’re seeing strength across the board," one trader told AMM. "Consumers aren’t complaining (about rising premiums). The price has gone down. They’re happy. They don’t care about the premium as long as the price is the right number."

"We’ve seen more interest this past week for May and June sales," a second trader said. "I think there will be more business further out. For the first half of the year, people are pretty well covered."

The lower LME price led some market participants to draw down stocks from listed warehouses, with total inventories easing to 5,052,700 tonnes on Thursday compared from 5,059,075 tonnes a week earlier.

However, more than 2 million tonnes of primary aluminum continues to be held in LME-registered warehouses in the United States as the ever-present contango means traders can continue to turn a profit simply by storing the metal in warehouses.

On Thursday, the July 12/Sept. 19 spread widened to a contango of $25 per tonne, while the April 16/July 12 spread widened to $35 per tonne.

The metal tied up in warehousing deals has left supply tight in the physical market.

"There’s not much metal being offered from the producers," the second trader said. "And if it is, it’s pretty pricey. Even though there’s plenty of metal, it’s still pretty tight. It’s not going directly to customers, it’s going to warehouses."

Even with the increased load-out rates introduced this month—warehouses storing more than 900,000 tonnes of metal can now be required to ship as much as 3,000 tonnes per day, up from 1,500 tonnes previously—this will not depress premiums, traders said.

"If the metal was going straight to consumers, it possibly might affect (premiums), but that’s not what’s happening. The majority of those warrants are financed. Load-out rates aren’t going to change that dramatically because most of the metal is moving from warehouse to warehouse," the second trader said.

A third trader agreed, although he noted that the slight rebound in the LME price on Thursday to $2,109 per tonne may lead consumers to hold off.

"We did a lot of business for the balance of this year and next year when the price came off, but it’s up now. And if the price keeps going up, people will sit on the sidelines," the third trader said. "Maybe we’ve seen the bottom. The stock market is rallying again."

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