LONDON European aluminum consumers have stopped buying on the spot market as they anticipate further decreases in the cost of metal following significant dips in both London Metal Exchange prices and AMM sister publication Metal Bulletins premiums in recent weeks.
Three-month aluminum closed trading March 22 at $1,938 per tonne after trading at about $2,165 per tonne in mid-February, while Metal Bulletins duty-paid aluminum premium stands at $280 to $290 per tonne, down from a record high of $290 to $305 per tonne earlier in the quarter.
Backwardations along the LME forward curve are keeping traders firmly on the selling side, while consumers are not booking much material with the expectation that purchase prices will fall further.
"Ive spoken to a few traders and they are all trying to sell now," a consumer said. "They dont want to hold units through the backwardations, but I still think the market will fall in the next few months."
Additionally, absolute demand levels for consumers are low, with their own sales suffering alongside the wider European economy.
"In the next two months, there will be a lot of pressure as demand is very poor," the consumer said. "All over Europe, its terrible, and people arent buying a lot. There is competition to sell, and premiums will come down more."
A second consumer confirmed that he was also not in the spot market for metal as long as premiums look like they could go lower still, which he expects due to the backwardations in the June/July, September/October and December/January aluminum spreads on the LME.
"My feeling is that premiums will fall further. It doesnt make sense with these backwardations to put more metal into warehouses for financing," the second consumer said. "If I need metal, its very easy. I just call a few people and get an immediate reply."
Some traders have lowered their offer prices so much to secure business that it has allowed for a few back-to-back deals that many market participants have not seen for more than a year.
"Ive been able to do some back-to-back business after picking up from another trader, and Ive not done that since December 2011," one trader said.
A version of this article was first published by AMM sister publication Metal Bulletin.