NEW YORK — Aluminum billet producers plan to sell less material on contract than usual in 2013, sources told AMM Thursday.

A domestic producer, which held its seventh 2013 contract discussion last week, plans to cut back the amount of metal it sells on contract next year by more than a third to take better advantage of the spot market. "In 2012, we contracted 99 percent of our capacity. We’re only going to book 65 percent of our 2013 metal on contract," a company source said. "We want to take advantage of the spot market in 2013, which we couldn’t do in 2012."

A second producer source agreed. "(It’s) still up in the air so far (but) I think we’re going to lean more on the side of taking a little less commitments compared to this year," he said.

Last week, the first producer sold two spot truckloads at a premium of 13.75 cents per pound and one truckload at 14 cents per pound for delivery in August, maintaining that supply tightness will mean both spot and contract premiums will be at high levels next year. "Generally speaking, if you think markets will be tight you take less commitments and try to surf a little more on the spot market," he said.

A trader agreed that contract premiums next year will be higher than this year, primarily because producers have been losing money as the price of aluminum on the London Metal Exchange continues to slide. Three-month aluminum ended Thursday at $1,898 per tonne on the LME, down 19.2 percent from a 2012 high of $2,349 per tonne in late February.

"Look, producers are desperate. They’re getting hurt by the LME," the trader said, anticipating that 2013 contracts will be at premiums at least between 12 and 13 cents per pound. "Producers may draw the line in the sand and say 14, 15 cents otherwise we’re not making it."

Solid demand from the automotive, distribution and truck and trailer markets coupled with curtailments—Norsk Hydro ASA is shutting its 180,000-tonne-per-year smelter in Kurri Kurri, New South Wales, Australia (amm.com, June 6)—have contributed to the supply tightness this year.

Few aluminum billet spot deals were closed this week, but premiums held at record high levels between 12.5 and 13.5 cents per pound.

"I think it’s still very solid," the second producer source said. "It’s not as red hot as it was, and of course there’s some slowdown in the summer, which is typical. But we had more orders in September than we anticipated."

"I’m still doing spot at high levels but there’s no panic buying anymore," the trader said.

A consumer agreed that demand remains robust. "I’m still waiting for the business softness that you hear and read about but I haven’t seen it in our orders yet. We’re still busy," he said. "Looking for spot metal now, you’re going to pay (premiums) around 12.5 cents. It might even be closer to 13."

However, another consumer said there is already slower growth in truck and trailer markets and other sectors may follow suit. "The weakness is broad—consumer goods, industrial/distribution, residential, and let’s not forget the still-dead commercial building and construction market," he said.