The Midwest premium for primary aluminum is seeing heavy discounting as the backwardation on the London Metal Exchange led some to offer material at lower levels to entice consumer sales amid weak demand.
Everybody is trying to get rid of inventory, and with the backwardation here theyre willing to give discounts, one consumer said.
The free-market premium remains in a range of 10.5 to 11.5 cents per pound, with sources noting that the small backwardation on the London Metal Exchange was forcing most transactions toward the lower end.
The cash-to-three-month spread was in a 50 cent backwardation Friday on the LME, with the cash aluminum contract ending the official session at $2,078 per tonne (94.3 cents per pound) while the three-month contract closed at $2,077.50 per tonne (94.2 cents per pound).
The market has definitely turned soft. ...Consumers like myself are either already full or have seasonality issues. Everybody typically does less in December, a second consumer said.
However, both consumers and sellers said they expect the market to return to a contango in early 2013, noting that this would bring a rise in the free-market premium.
The financing deals will still make sense once the backwardation works out, and demand will come back in the first quarter, according to the second consumer.
Our feeling is that the back will firm up next week to about $30 to $40, but by the 28th (of December) there wont be one, the first consumer added.
If we return to a steady contango market, the premiums should come up well over 11 cents (per pound). Once the holidays are over, people will start restocking, one trader said.
It will go up to 12.5 to 13 cents. ... it will move up gradually, a second trader added.