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Aluminum premiums inch up on low LME

Keywords: Tags  Midwest premium, P1020, LME, scrap, aluminum, aluminum prices, nonferrous, Michael Cowden

CHICAGO — Midwest aluminum premiums have edged up slightly due to low prices on the London Metal Exchange and weak scrap flows, even as the overall demand situation remains largely unchanged, according to market sources.

AMM’s P1020 premium has inched up to between 11.35 and 12 cents per pound this week from between 11.3 and 12 cents per pound last week.

The slightly higher premiums come at a time when exchange-traded aluminum prices are on the decline.

"Usually when the LME comes down is when the higher premiums are paid," one market source said, noting that some customers pay less attention to premiums than an "all in" price comprising both the LME price and the premium. That all-in price may have dropped from between $1.06 and $1.07 per pound last week to about $1.03 per pound this week due to a falling LME price, even with the slightly firmer premiums, he said.

The LME’s cash primary aluminum contract ended the official trading session at $1,960 per tonne Feb. 28, down 4.3 percent from $2,047 per tonne the same time last week.

"When the price is down, the (higher) premiums are easy to sell. (Buyers) see a $100 (per tonne) drop in the price, and they don’t worry about a few points on the premium," one trader said. "And that’s what’s going on right now."

In addition, aluminum scrap flows have slowed in some regions due to bad weather across much of the United States, bolstering demand for prime material and putting upward pressure on premiums as well, sources said.

"Some traders who owned scrap just couldn’t get it out this week," the market source said. "So if someone needed material, then they maybe had to buy prime. ... And they’re not too concerned about the price because they need to keep their plant running."

As a result, the trader said his company has not transacted any deals below 11.35 cents per pound this week and has even booked significant tonnages at premiums as high as 11.5 cents per pound.

But while the trader said his company has seen some uptick in activity at the lower overall price levels, he acknowledged that some buyers continue to sit on the sidelines as they wait for further metal price declines.

A second trader confirmed the trend, noting that his orders are up but not dramatically so. Buyers may "nibble" at low prices, he said, but more business will probably come after prices stop falling.

"If (the LME price) recovers and then comes back down, you’ll see more (bookings)," he predicted. "We’ll always get that kind of stuff. People trying to pick bottoms. But definitely these are really attractive numbers for consumers."

Even if no big surge in business has happened, the second trader said most indicators were nonetheless positive. In deals that specify that a buyer order a certain volume of material each month, referred to as "min-max" contracts, for example, most buyers have come in at the mid- to high-end of their ranges, he said.

"Let’s say it’s 500 (tonnes minimum) to 1000 (tonnes maximum). Most are coming in anywhere from 750 to 1000 (tonnes)," the second trader said.

But while market sources continued to express optimism about a variety of aluminum end-use sectors, most said they had not seen a major change in physical demand. At the same time, much of the current business is driven more by contract rather than spot buyers, several market sources confirmed.

Still, there is business to be done. "Our consumers are finally coming in and saying, ‘We like these prices, they’re at three-month lows and we want to lock-in," a third trader said, noting that his firm had seen fixed-forward interest for the second quarter, the rest of the year and even into 2014.

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