CHICAGO — Aluminum billet premiums have increased as spot activity picked up following a slow start to 2013.

AMM narrowed its 6063 billet premium range to between 12 and 13 cents per pound Jan. 25 from 11 to 13 cents per pound previously. Volumes reportedly traded totalled in excess of 4,200 tonnes or 9.26 million pounds over the past week in comparison to about 2,500 tonnes recorded a week earlier (amm.com, Jan. 16).

Demand is likely to heat up further from April to June thanks to strength in the automotive sector, continued improvements in construction activity and a slowly but steadily improving U.S. economic outlook, several market sources said.

“There is this wonderful thing called the economy,” one trader said. “It’s actually growing. And with growth comes consumption.”

Others noted that a somewhat more settled domestic political landscape and a lack of imports were also supporting higher premiums.

“January was a slow start, but people are optimistic,” a producer source said. “February is going to be much better than January, and March is looking much more solid than the first two months of the year.”

While the majority of reported business was concluded within the new range the second producer said that his company had conducted some spot business in the range of 11 to 13 cents per pound. Other market players contended that the 11-cent figure was now gone from the market.

A consumer said that his firm had seen some lower-priced offerings in December and early January as producers looked to sell uncommitted capacity in the lead-up to or shortly after the year-end holidays. But more recently, his firm has booked 3.5 million pounds at approximately 12 cents, he said.

As long as the general economic environment is holding ground or improving, his firm expects to see 2013 volumes on par with or better than those in 2012, he said. “There are no data points that say we should be overly concerned,” he said.

But while physical demand may be improving, the consumer said he was puzzled by the fact that P1020 premiums, currently at 11.3 to 12 cents per pound, and 6063 billet premiums are nearing convergence, a historical anomaly made all the more surprising given the size of aluminum inventories in London Metal Exchange-registered warehouses.

Billet and P1020 premiums now represent a much bigger portion of total production costs than in the past, a phenomenon largely only acceptable because aluminum prices are “in the tank,” he said.

The prospect of a production disruption at Alcoa Inc.’s Aluminerie de Becancour (ABI) smelter in Quebec remains a concern.

Pittsburgh-based Alcoa and the United Steelworkers have been trying to renew a labor contract covering some 900 workers at the 400,000-tonne-per-year ABI smelter since September, leaving some nervous that billet supply will diminish if negotiations turn sour (amm.com, Jan. 4).

“The elephant in the room is what’s going to happen at ABI,” the producer said. “If there’s something that keeps me awake at night, that’s it.”