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Aluminum premiums up amid strong demand

Keywords: Tags  Midwest aluminum premium, aluminum, automotive, LME, London Metal Exchange, P1020, Michael Cowden

CHICAGO — Midwest spot premiums for aluminum P1020 have inched up, with some market players predicting further increases and others cautioning that such talk has been overblown.

Demand from both the financial community and physical users, especially in the automotive sector, remains strong, several sources said. The majority of sources contend that premiums of 11 cents were no longer available.

Reasons for the uptick include a seasonal boost in activity and ongoing supply restraints caused by the amount of material tied up in London Metal Exchange-listed warehouses.

The market is "trying to find its true place but is (going in) an upward direction, no doubt," one trader said, noting that his company was seeing premiums of 11.3 to 11.5 cents per pound.

One producer source said that his company recently sold 600 tonnes at slightly above 11.5 cents, while others reported higher numbers. "There is a more bullish tone for the (Midwest) premium ... and pretty much (all end markets) are healthy," he said.

Reports of transactions at higher numbers led AMM to increase its Midwest premium to a range of 11.3 to 12 cents per pound Jan. 24 from 11 to 12 cents previously.

Financing continues to be available and the U.S. economy has been resilient despite recent political turmoil, factors perhaps bolstering physical demand for metal, one consumer said. However, he believes that the most salient feature of the current market is that the ongoing contango means traders continue to put metal into LME-registered warehouses.

Alcoa Inc. chairman and chief executive officer Klaus Kleinfeld said recently that the aluminum inventories would be absorbed by the physical market even if the contango were to disappear (, Jan. 9), but one trader cautioned that a current backwardation in the forward spreads might be a sign that the financing deals could end and premiums would likely hold their ground if not reverse course. "In a back, premiums go down," he said. "That’s just the way it is."

Nearly 5.2 million tonnes of aluminum were held in LME-registered warehouses at the close of business Jan. 23, on par with the previous week, the most recent exchange data show.

The trader also questioned whether talk of premiums increasing might have come out of a recent industry conference as an effort to push prices up. He noted that his company had seen at least one potential client "swear on (a) stack of bibles" that premiums were going to 13 to 13.5 cent per pound, but then decline an offer of 12 cents for the year.

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