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Aluminum premiums continue to climb

Keywords: Tags  aluminum, warehouse premiums, copper, zinc, lead, London Metal Exchange, LME, chris prentice

NEW YORK — Warrant premiums for aluminum in London Metal Exchange-registered U.S. warehouses have been rising, and traders tell AMM they see little on the horizon to keep them from continuing to climb.

"There’s the contango, the availability," said one trader who put premiums at $135 per tonne.

Warrant premiums for metal in warehouses in Baltimore, Chicago and New Orleans have climbed to an average of $132.50 per tonne, with traders reporting a low of $120 and a high of $140 for the much-desired warrants. They previously had averaged around $107.50 per tonne, with a low of $95 and a high of $125. "If I saw them for less, I’d buy them all day long," the trader said.

The aluminum supply is tied up due to long queues to pull material out of LME-registered warehouses in Detroit, traders have told AMM. In April, Midwest spot aluminum premiums rose above 10 cents per pound for the first time in almost 10 years (AMM, April 20).

"We have a bottleneck situation," a second trader said. "Everybody’s trying to move product out of (Detroit). It’s much more difficult over the past two weeks."

Warrants for material in Detroit are next to impossible to find, traders said. Of 2.2 million tonnes of stocks in LME-registered warehouses in the United States on April 26, 1.4 million tonnes were in Detroit. Waits for pulling metal out there are at a minimum of eight months, traders have told AMM.

Meanwhile, the spread between the price of spot aluminum and three-month material means there’s a profit to be made simply by holding material.

"You’d need to see a tightness of the LME spread, or any type of crisis in the financial markets . . . that could destabilize the situation," the second trader said. Without that, there’s no end in sight to the climbing premiums.

Cash aluminum settled at $2,058 per tonne in official trading Monday, while three-month aluminum settled at $2,098 per tonne.

Meanwhile, traders reported a lack of activity on warrant prices for other nonferrous metals.

Warrants for copper, which has slipped into a backwardation on the LME, have failed to see any change. Cash copper settled at $8,529.50 per tonne Monday and the three-month contract settled at $8,377 per tonne, and traders said premiums for copper warrants were unchanged at $5 to $10 per tonne.

"(The backwardation) should mean that premiums would come down because it costs you so much to carry, (but) we haven’t seen that," the first trader said.

"There’s very little demand for (material) here, and there are queues to get the material," a third trader said. "The only thing that’s screwy is the copper situation on the LME. That’s just somebody playing (the market)."

Warrant premiums for zinc and lead also were unchanged at $16.25 per tonne and $21.25 per tonne, respectively.

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