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Aluminum premiums graze new high

Keywords: Tags  aluminum, Midwest spot premiums, AACOA, Lippert, Norsk Hydro, London Metal Exchange, LME, contango warehouses

NEW YORK — Midwest spot market aluminum premiums grazed a record high this past week as supply remained tight and traders continued to finance metal in warehouses.

Midwest spot premiums rose to a wider 9.75- to 10.5-cent-per-pound range from 9.75 to 10.25 cents a week earlier, with a number of traders reporting sales as high as 11 cents per pound for immediate deliveries.

"I definitely wouldn’t sell under 10 (cents) right now," one trader told AMM.

Suppliers attributed the continued run-up mostly to supply constraints. "It’s tight. It’s very, very tight," a second trader said.

A third trader agreed, noting that while his business logged a slight slowdown in the first week of May vs. the prior week, supply remains tight enough to keep premiums firm.

"We haven’t seen that much activity this past week as the previous week. It’s probably because consumers were finalizing May orders before the month started. But it seems like there’s a shortage of metal in certain regions," the third trader said.

Others, however, denied that demand appeared to have taken a step back in recent days.

"Business is stable. We’re in the peak season. Orders are pretty good, I’m not complaining," the second trader said.

A producer source agreed. "The market is supported by the LME (London Metal Exchange) spreads and limited supply, that’s true. But it’s also supported by strong demand," the producer said. "It’s not like earlier in the year, when it was artificially tight. Now we’re also seeing demand, which is creating something of a perfect storm."

The North American extrusion sector, in particular, is said to be experiencing a demand rebound, with several extruders ramping up output schedules to meet customers’ demands. AACOA Inc., for example, has initiated a 24/7 production schedule (AMM, May 2), while Lippert Components Inc., a unit of Drew Industries Inc., is in the process of ramping up three extrusion presses at its new facility (AMM, May 3).

At the same time, traders continue to finance metal in warehouses as the forward curve allows. Although participants drew more stocks from LME-listed warehouses this week—global inventories slipped to 5 million tonnes on May 2 from 5.1 million tonnes a day earlier—that material is simply said to have been refinanced in non-LME listed warehouses, keeping the supply situation taut.

This warehousing trend is likely to continue, provided the contango remains in effect, sources said. The May 16/June 20 spread widened Friday to a contango of $16.50 per tonne, while the July 18/Sept. 19 spread widened to $25.50 per tonne, according to LME data.

"(Consumers) are competing with the LME warehouses. So long as banks are happy to hold metal and finance it against the contango, metal will continue to be put away," the second trader said.

In addition, sources report an increase in North American material being exported to Asia, squeezing markets further.

Traders say Japan is buying more North American metal after curtailments in Australian capacity. Norsk Hydro ASA cut one-third of its 180,000-tonne-per-year capacity at its Kurri Kurri smelter in New South Wales and is contemplating permanently shutting the smelter due to an uncertain market outlook, weak aluminum prices, a strong Australian dollar and high carbon tax (AMM, Feb. 20).

Kurri Kurri sends a significant volume of metal to Asia, sources said, so Asian markets are already feeling the pinch, with some Japanese traders said to be ordering North American material from the West Coast.

"Japan is bidding some big numbers. So obviously there’s some setback there," the second trader said. "There’s not a lot of metal coming from Australia, and Russian material continues to be financed in warehouses in Europe."

"Japan . . . is drawing some units away from the West Coast," the first trader agreed. "That’s material that would normally come back to the Midwest."

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