NEW YORK Seasonality and
oversupply dampened spot Midwest aluminum premiums this past
week, the first decline since December.
Premiums widened to 10.5 to 11.5
cents per pound from 11 to 11.5 cents previously amid a lack of
demand coupled with availability of metal.
"Theres some discounting
going on. ... No one is buying spot. All of the traders are
long, so theyre still trying for 11 and 11.5 (cents) but
you can definitely buy at a discount right now," one trader
"We did buy some this (past)
week and definitely got wider discounts than we have for
months. Clearly its soft out there. And theres more
metal available," a consumer added.
Rising premiums have been a
dominant theme this year, as financing deals kept millions of
tonnes of aluminum in London Metal Exchange-registered
warehouses and out of the market.
These deals are lucrative as
long as there is a contango in the market. A recent
backwardation has led to slightly more metal being delivered
out of the warehouses, with Detroit stores seeing a drop of
4,700 tonnes on Nov. 14, taking total inventories there to just
over 1.4 million tonnes.
Global aluminum inventories in
LME-listed warehouses stood at nearly 5.09 million tonnes
Wednesday, down 8,000 tonnes from a day earlier, but stocks
inched up to almost 5.11 million tonnes by Friday morning.
"I know there is a bit of metal
out there. Some traders may want to get metal off of their
books because of the back. ... Consensus is that (premiums)
wont stay high for too long, seeing as were
approaching the end of the year and people are trying to keep
inventories as lean as possible," a producer said.
"Its year-end silliness.
Anything is possible," a second trader said.
Despite the softening, the
second trader said premiums will more than likely bump up next
year, pointing to the long queues at Detroit warehouses.
"The queue in Detroit is now out
to the beginning of 2014. Canceled stock in Detroit is higher
than Vlissingen. Just this happening alone increases premiums.
... (Plus) no one has fixed forward premiums. Consumers,
traders, everyone thinks that premiums will fall. And what
happens when no one fixes the premiums? Everyone rushes for the
same door and theres a squeeze," he said.
"Right now, its the calm
before the storm. Its the end of the year. But once we
turn the New Year corner, be ready. The fiscal cliff
notwithstanding, which may (temporarily) temper premiums," he
"I think premiums will elevate
again next year," a third trader said. "We may have a bit of a
holding pattern for the next six to eight weeks or so, but
there hasnt been a big change with the warehousing and
financing situation that set us up for rising premiums this
year and I dont expect that to change next year. And if
we do get an increase in demand, I would anticipate those
premiums continuing to go up, albeit not as dramatically as