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Midwest aluminum premiums fall amid oversupply

Keywords: Tags  aluminum, aluminum premium, Midwest premium, London Metal Exchange, warehouse stocks, Suzy Waite

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.

"There’s some discounting going on. ... No one is buying spot. All of the traders are long, so they’re still trying for 11 and 11.5 (cents) but you can definitely buy at a discount right now," one trader told AMM.

"We did buy some this (past) week and definitely got wider discounts than we have for months. Clearly it’s soft out there. And there’s 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) won’t stay high for too long, seeing as we’re approaching the end of the year and people are trying to keep inventories as lean as possible," a producer said.

"It’s 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 there’s a squeeze," he said.

"Right now, it’s the calm before the storm. It’s 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 added.

"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 hasn’t been a big change with the warehousing and financing situation that set us up for rising premiums this year and I don’t 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 this year."

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