NEW YORK Midwest spot aluminum premiums will rise in the coming weeks, traders and producers said, anticipating that a further decline in London Metal Exchange prices will boost business.
Spot premiums are firm at historic highs of 10 to 11 cents per pound even as spot business slowed due to a two-day closure of the LME for a U.K. holiday.
But players see inquiries picking up with an anticipated slide in aluminum prices.
"Theres been some interest, but people expect the price will go down further, so theyll wait until then to come in," one trader said.
Three-month aluminum ended the official session on the LME at $1,973.50 per tonne Friday, down from $1,985 per tonne on Wednesday. Prices have been steadily declining from a Feb. 28 high of $2,349 per tonne, when concerns over the European debt crisis spooked investors.
"It was a quiet week with the London holiday and the Queens Jubilee," one producer said, adding that traders will likely see more inquiries as the price of metal continues to drop.
Consumers, traders and producers all reported spot deals above 10 cents over the past week, with a second trader achieving 11.5 cents per pound for a few uncharacteristic deals, he told AMM.
The premium of "10 cents is holding very nicely. If someone wants metal tomorrow, you can ask whatever you want," the first trader said.
Although inventories are decliningon Friday, global aluminum stocks held in LME-registered warehouses totaled 4.86 million tonnes, down from 4.9 million tonnes on Wednesdaythe metal isnt reaching the physical market.
Stocks are mostly being shuffled from one warehouse to another rather than going to consumers as traders continue to tie up metal in financing deals, market participants said.
"There is a lot of metal going out," the producer told AMM, pointing out that 2,925 tonnes of metal was delivered out of LME-registered warehouses in Detroit Thursday. "Unfortunately its just not going to the consumers. Its going to other warehouses. So while it appears that the stocks are decreasing, theyre really not. Theyre just hidden."
The warehousing deals mean that supply in the physical market remains tight.
"When you think about it, its completely ridiculous. But theres money in it. So people will keep doing it," the producer added.
But producers and traders have little incentive to stop financing aluminum, provided the cash-to-three-month spread remains in contango, as they can profit from storing the metal.
The July 18/Dec. 17 spread was in a contango of $36.75 per tonne Friday, while the July 18/Sept. 7 spread was at $21.50 per tonne, according to LME data.