LONDON United Co. Rusal is attempting to negotiate its aluminum billet supply contracts with premiums linked to primary metal ingot premiums rather than the stand-alone European billet premium, sources tell AMM sister publication Metal Bulletin.
"Rusal is attempting to link their product premium to the P1020 aluminum premium," a trader said.
A source at Rusal confirmed that it was looking to do more European contract business for billet and other value-added products (VAPs) based on a premium derived from the standard ingot premium, as is common in other regions.
"Depending on the location, some contracts are quoted as an up-charge to P1020 material and some are quoted in outright numbers," the source said. "Were looking to do more VAP contracts with numbers linked to P1020."
The company is attempting to mitigate the impact of the volatility in aluminum premiums, which has seen Metal Bulletins duty-paid European ingot premium rise to $260 to $280 per tonne from $140 to $175 per tonne in early 2012.
In the same period, Metal Bulletins European billet premium has risen to $400 to $430 per tonne from $370 to $400, meaning that the spread has narrowed between the two.
Rusal wants to link its billet contracts to the P1020 premium not only to benefit from the current high numbers but to protect against similar volatility in the spread next year and beyond.
"In most regions, we have the possibility of producing either P1020 or VAPs, depending on whats more interesting," the source said. "Our goal is to produce more VAPs, but we dont want to be in and out of the VAP market. We dont want to leave it next year because the premiums dont work."
Many companies that buy aluminum ingot and remelt it into various products have suffered enormously this year, as the cost of their raw material has risen much faster than the price of their products. Many have closed their doors, leaving a gap in the market.
Moscow-based Rusal is spending more than 170 million rubles ($5.4 million) to upgrade the casting facilities at its Novokuznetsk aluminum smelter, which will increase the facilitys output of VAP. It is also modernizing its Aluminium Division West smelters in Russia, boosting the share of VAP to 100 percent of production at both the Volkhov and Urals smelters.
"When an opportunity presents itself, we are happy to take it," the Rusal source said.