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Europe aluminum premiums slip again; sellers trim offers

Keywords: Tags  aluminum, LME backwardation, London Metal Exchange, European premiums, Jethro Wookey

LONDON — European aluminum premiums fell further at midweek as backwardations on the London Metal Exchange led traders to lower offers to secure business.

AMM sister publication Metal Bulletin’s European high-grade aluminum, minimum 99.7-percent ingot, E.U. duty-paid premium fell to $280 to $295 per tonne from $285 to $295 per tonne previously. It’s also below the Feb. 4 range of $285 to $300 per tonne, which marked the first drop in the premium since December 2011.

"The premium is certainly weaker and people are discounting a lot to get business," one trader source said.

Sellers, especially traders, reported strong sales to consumers over the past week as companies looked to secure second-quarter material or buy additional tonnages for March.

"On Thursday and Friday last week things started to go crazy and it’s spilled over into this week as well," a second trader said, although some producers reported lower activity levels.

"There’s not been much for the second quarter; there’s still weakness in the market," one producer source said.

But good consumer demand hasn’t halted the slide in premiums as traders look to offload material ahead of backwardations in the LME forward curve.

"The backwardations are the reason the premiums are falling; it’s not just the June/July spread, but the September/October and December/January spreads as well," the second trader said. "Can people live with six months of no contango? No; they will have to sell stocks."

Other aluminum premiums are also showing weakness, although to a lesser degree than the duty-paid ingot premiums. The duty-unpaid premium for LME specification P1020A aluminum settled at $208.50 per tonne in-warehouse Rotterdam, Netherlands, March 6, down from about $216 in mid-February.

Warehouse incentives are also maintaining duty-unpaid premiums.

"Unpaid metal all gets put in warehouses, and they don’t need contangoes," the second trader said.

Weaker numbers were also reported for aluminum billet, which has otherwise performed strongly in 2013. Duty-paid extrusion billet premiums are at $480 to $500 per tonne. "We’ve not been able to break $500 for billet, and it’s now coming off a bit," the producer said. "But we’re not unhappy with the billet bookings for the second quarter, and there’s still interest on the rolling side."

Sellers have also been hit by falling LME aluminum prices, with three-month metal ending the LME’s official session at $1,956 per tonne March 7, down 9.4 percent from around $2,160 per tonne in mid-February.

Prices have moved according to macroeconomic trends, but it is unlikely that aluminum will rise much above marginal production costs (at about $2,200 per tonne) while so much excess capacity remains in the market.

There have been shutdowns, but not enough. "We don’t like lower premiums, but we’re far more concerned by the falling LME prices," the producer said. "The cutbacks have only been a fraction of what has been announced." 

A version of this article was first published by AMM sister publication Metal Bulletin.

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