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Midwest aluminum P1020 premiums steady

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

CHICAGO — Midwest aluminum spot premiums have remained largely unchanged this week, although several market players said that they expect prices to rise in the coming months.

AMM’s P1020 aluminum premiums remained in a range of 11.3 to 12 cents per pound though some traders reported some business either side of the range.

Market sources generally said that they had seen little change in transacted prices since last week.

One deal for “a couple hundred tonnes” was concluded at 12.5 cents per pound, according to one trader while a second trader said that his company had recently booked 400,000 pounds (181 tonnes) in the range of 11.40 to 12 cents per pound.

One producer questioned whether numbers above 12 cents were really representative of the overall market. “People are estimating higher numbers. Some are extremely bullish, as in 20 cents, and other people are saying 12 to 12.5 (cents),” the producer said. “It’s a mixed bag of forecasts.”

Transactions at 12 to 12.5 cents were generally for smaller purchases or due to unique situations, he noted.

The market is feeling bullish, however, and it wouldn’t be surprising to see premiums rise, the producer said. “But let’s see those sales get done (at higher prices),” he added. “Right now, it’s just a lot of people talking it up.”

Some sources said that they had heard speculation that the Midwest premium could rise to as high as 20 cents in 2013, a notion that a second trader dismissed as “ridiculous”.

Those expecting higher future Midwest premiums cite a host of reasons. One is the limited metal availability resulting from a market contango that gives both producers and traders an incentive to put metal into London Metal Exchange-listed warehouses, sources said.

“Traders are almost more buyers than sellers right now,” one producer said. “They are trying to build up their positions right now and finding out that producers have sold quite a lot to the LME warehouses.”

Total aluminum stocks in LME-listed warehouses stood at 5.17 million tonnes Jan. 28 with U.S. inventories accounting for over 1.9 million tonnes.

The amount of material in warehouses and the resulting queues to get metal out means physical users are struggling, at times, to get their hands on metal.

A third trader noted that a backwardation in forward spreads had eased, meaning there is little incentive for financing deals to end. This could also potentially be a sign that Midwest premiums could rise, he added.

Some also said some consumers have not been able to find enough scrap or enough of the right grades of scrap and so are reaching out for P1020 to fulfill their requirements.

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