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Midwest premium steady as outlooks diverge

Keywords: Tags  Midwest premium, automotive, construction, scrap, P1020, LME, warehouse stocks, backwardation contango


CHICAGO — Market sources disagree over the direction of the spot Midwest aluminum premium, with some arguing that it should trend upward while others expressed concerns about increased supplies colliding with weaker demand.

AMM’s P1020 premium remained steady at 11.3 to 12 cents per pound, with business transactions reported within that range again this past week.

"It’s busy out there," one trader source said, contending that prices were roughly in the same range on the higher end of the spectrum but had moved up on the lower end. The trader said he was "easily" selling material in the range of 11.5 to 12 cents per pound and had recently transacted "a couple thousand tonnes" at that level.

Some buyers might have been too conservative in making long-term contract buys and, therefore, were turning to the spot market to secure additional metal, the trader said. Automotive demand remains strong, building should pick up as spring nears, and winter weather is slowing scrap flows, he and other market players said—all of which would support a rise in premiums.

A consumer source said he had recently done deals for "a couple of truckloads" at 11.35 cents but said other buyers might be willing to pay more for prompt metal due to the long queues at warehouses and a potentially tight scrap market. With automotive production roughly even with 2012 and demand from the window and door sector picking up, premiums could well rise in coming weeks, he added.

Global stocks in London Metal Exchange-listed warehouses totaled 5,158,025 tonnes at the close of business Feb. 20.

But the consumer and other sources expressed increased concern about an LME backwardation that has spread from the summer months into the fall. Financing deals that encourage warehousing metal are supported by a market in a contango, and a "back" could also drive the Midwest premium down ( amm.com, Jan. 24).

While some market players were optimistic that premiums would hold their ground or rise, others were cautious.

One market observer agreed that 3000- and 5000-series aluminum scrap used in rolling mills might be tight and secondary smelters might be looking to use P1020 instead, although he questioned automakers’ initial build forecasts for 2013 and whether the market would recover this year.

"The first half of the year, I was more optimistic. But I’m not seeing (a recovery) materialize," he said, indicating that the "quiet" market was tied to uncertainty over a budget deal in Washington.

LME prices are also down, with the cash primary aluminum contract ending the LME’s official session at $2,047 per tonne Feb. 21, down 3.6 percent from $2,123 Feb. 15.

Alcoa Inc.’s majority-owned Aluminerie de Bécancour Inc. also should ramp up production if a new labor deal is reached, he said. A union negotiating committee has recommended that workers accept the deal ( amm.com, Feb. 19).


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