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 Sohars smelter in
Oman (amm.com, July 20), while Ormet announced Friday
it would idle one of six potlines at its 270,000-tonne-per-year
facility in Hannibal, Ohio (amm.com, 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 (amm.com, 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.
"Youve 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
Sohars 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 Exchangethree-month aluminum closed
at $1,913.50 per tonne, down 19 percent from this years
high of $2,349 per tonne.
As these curtailments are new,
they havent 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 dont 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. Theyre 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 its very
crowded. Its 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 theres a better
possibility that nothing happens."