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Aluminum premiums up on low LME price

Keywords: Tags  Midwest premium, P1020, LME, aluminum prices, backwardation, scrap, zorba, automotive aerospace

CHICAGO — Midwest aluminum premiums have ticked up on low primary aluminum prices, stable demand from end-users and traders, and tight scrap supply.

AMM’s P1020 Midwest premium now stands at 11.5 to 12 cents per pound, up on the low end from 11.35 to 12 cents previously.

Business levels picked up in recent days due to low prices for primary metal and a contango on the London Metal Exchange, some traders said.

"When the price is lower, people aren’t focusing as much on the premium ... so 11.5 (cents) is no big deal," one trader said.

That’s especially true in a market that appears to be "squeezed," the trader said. "You still have metal going to warrants and there is a contango at least until June, so people are bullish on premiums," he said. "Whether (premiums) stay up I don’t know, but for the time being, they’re strong."

Market players generally pointed to solid demand from the aerospace sector, firm demand from automotive and a slowly but steadily improving building and construction market as bolstering premiums.

Still, some sources fretted that physical demand had hit a plateau. Demand has "flatlined a bit relative to the last couple of weeks," a second trader said, but added that even if demand has slowed, a tight domestic scrap market has provided a boost to premiums. "There is very little scrap available, so there are a number of customers that need to buy primary aluminum to cover (their requirements)."

Scrap flows had been held in check by winter weather complicating logistics and low prices on the LME making some scrap suppliers less willing to part with stocks linked to LME tags, one market source said. The LME price for primary aluminum is improving, as is the weather, so those factors could fade into the background, he added.

The LME’s cash primary aluminum contract ended the official session at $1,938 per tonne March 14, down 0.4 percent from $1,945.50 per tonne the previous day but up 2.2 percent from $1,895.50 per tonne March 11.

But offshore demand, especially that from China for zorba, should keep scrap prices elevated, the market source said. "Everyone keeps talking about how bad China is," he said. "They might be using less virgin metal, but I think they are using just as much scrap as ever."

Some market sources continued to express concern about whether historically high premiums would be sustainable, given a backwardation in forward spreads on the LME.

"What’s going to be interesting it to see what happens with these spreads over the second half of 2013," one producer source said.

If the backwardation eases, premiums could increase further; but if it becomes more pronounced, premiums could tumble, he said.

Global stocks in LME-listed warehouses stood at 5.17 million tonnes at the close of business March 13, down from 5.19 million tonnes on March 6, the highest level thus far this year.

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