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P1020 premiums firm on Ormet, Sohar cuts

Keywords: Tags  Midwest aluminum premiums, Rio Tinto Alcan, Ormet, Sohar Aluminium, London Metal Exchange, Suzy Waite

NEW YORK — Capacity curtailments at Sohar Aluminium Co. LLC and Ormet Corp. have led to an increase in spot Midwest P1020 aluminum premiums.

Rio Tinto Alcan declared force majeure on P1020 deliveries in the Asia-Pacific region due to operational problems at Sohar’s smelter in Oman (, July 20), while Ormet announced Friday it would idle one of six potlines at its 270,000-tonne-per-year facility in Hannibal, Ohio (, July 20).

Both announcements, coupled with the news that Century Aluminum Co.’s Hawesville, Ky., smelter could be on the chopping block if a new power agreement cannot be reached (, July 18), have contributed to Midwest premiums tightening this week, with sources expecting a further rise.

Midwest premiums rose to a record high of 10.75 cents to 11.25 cents per pound Friday, up from 10.50 to 11.25 cents per pound previously, with one trader concluding a 12-cent trade for several thousand tonnes for delivery this week.

"I was happy at either side of 11 cents, but once this news came out, I had to increase it (to 12)," a trader told AMM.

"You’ve got Ormet cutting back, and then you have this Sohar situation with Alcan. This keeps things tight," a second trader added.

The operational issues at Sohar’s 360,000-tonne-per-year smelter in Oman could halt production for up to six months. Rio Tinto Alcan, which owns 20 percent of the smelter, manages all of its metal that is sold into international markets.

Ormet will begin curtailing capacity Monday in response to the plunging price of aluminum on the London Metal Exchange—three-month aluminum closed at $1,913.50 per tonne, down 19 percent from this year’s high of $2,349 per tonne.

As these curtailments are new, they haven’t had a huge impact on actual supply yet, although that could change very soon, a producer said.

Very little forward business is closing at the moment as most consumers don’t want to lock in at current premiums. This could bump spot premiums up even higher, traders said.

"Nobody wants to pay the current premium for forward business. They’re all waiting for it to go lower. So you know what that means? If nobody buys it forward and they all just go to the spot market, it will go through the roof," the first trader said. "Now it’s very crowded. It’s putting more pressure on spot."

The September-October 2012 spread on the LME slipped into backwardation Thursday, according to LME data, prompting some to suggest this could see the release of some material that is tied up in financing deals in LME-registered warehouses. The Sept. 19/Oct. 12 contract hit a backwardation of $2.50 per tonne Friday.

"That back is bearish, but Ormet cutting capacity is bullish," the producer said.

"The one question is, What happens with the back? It could affect premiums short-term," the second trader said. "But now, with the cutbacks happening and prices remaining lower, I think there’s a better possibility that nothing happens."

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