NEW YORK Midwest spot aluminum premiums have surpassed 10 cents per pound for the first time in almost a decade, with traders reporting decent demand as the London Metal Exchange price of aluminum continues to deflate.
Midwest spot premiums rose to 9.75 to 10.25 cents per pound this week from 9.25 to 9.65 cents previously, with several suppliers achieving 11 cents for immediate deliveries.
If demand stays strong and supply stays tight, sources say the premium has nowhere to go but up.
"Every hour we have a new deal. I just closed one this morning," one trader told AMM.
"Were pretty tight right now, but we have a few smelters with extra bits and pieces, and the last spot deal we closed was at 10.25 (cents). Ive heard that a lot of transactions have been over 10 (cents)," one producer said.
"Were expecting premiums to keep going up," a second trader added.
Traders and producers reported solid consumer interest this week as the LME aluminum price continued to slide. Three-month aluminum closed at $2,057 per tonne (93.3 cents per pound) Thursday, down 0.6 percent from $2,069 per tonne (93.9 cents per pound) a day earlier and down 3.2 percent from an April high of $2,125 per tonne (96.4 cents per pound).
"The dropping price is definitely a factor. Most people came in the last dip and bought for the second quarter, so now were seeing that interest push a little further out," a third trader said.
"Theres been more activity, absolutely," the producer agreed. "When you see the price drop, youll often see more consumers coming in to buy."
Participants arent sure how much lower the price will go, and while depressed prices are good for consumers and traders, producers are feeling the pinch.
"Throw the crystal ball out the window; I have no idea how low it will go," the first trader said. "I think its too low, (but) its keeping things going for sure. Im just glad Im not a producer. When prices are high, youre the king of the worldand vice versa when theyre low."
The high premiums have led traders to sell directly to consumers rather than storing their material in warehouses, participants said.
"Warehouses are offering very strong incentives, but if were able to get the premium we want, well sell to customers. Right now, with premiums at these levels, its better to sell at the premium than sell to the warehouse," the producer said.
"If the demand is there and the premiums are high, I guess it makes more sense to sell it rather than finance it," the third trader agreed.
Participants drew down more stocks from global LME-listed warehouses this week, as inventories dipped to 5.06 million tonnes on Thursday from 5.07 million tonnes a day earlier.
But traders are still financing metal, keeping supply in check. On Thursday, there were still more than 2 million tonnes of primary aluminum stored in U.S. warehouses, according to LME data, and sources say that with the ever-present contango in effect the situation wont change anytime soon.
On Thursday, the May 16/July 18 spread widened to a contango of $27.75 per tonne, while the July 19/Dec. 19 spread widened to $56.50 per tonne, according to LME data.
"Theres still a lot of financing going on. I dont think spot is necessarily (so) robust that everything is pulling out and going directly to the customer. Theres still metal moving from warehouses going to other financing deals as opposed to consumption," the third trader said.
"Warehouses are still sucking down a ton of metal," the second trader agreed.