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Aluminum premiums steady amid tight supply

Keywords: Tags  Aluminum, Midwest premiums, Metro International, LME, warehouses, London Metal Exchange, Suzy Waite

NEW YORK — Midwest aluminum spot premiums remain steady at between 11.5 and 12 cents per pound as warehousing games continue to keep supply tight.

In the latest move, canceled warrants in London Metal Exchange-listed warehouses in Baltimore rose by 81,275 tonnes March 21. The material is likely to be delivered to Metro International Trade Services LLC’s warehouses in Detroit rather than going to physical consumers, traders told AMM.

"It’s going to Metro," one trader said. "They want to continue to vacuum up metal. And they were able to strike a deal with whoever held the metal in Baltimore."

"I heard it was going to Metro," a second trader said.

Metro did not respond to a request for comment.

LME-listed warehouses in Detroit held 1.4 million tonnes of aluminum March 26, with canceled warrants at 896,175 tonnes. Queues for delivery of metal out of warehouses in Detroit stretch to summer 2014. In comparison, stocks at Baltimore warehouses stood at 323,675 tonnes, with traders estimating queues at around three months.

Financing deals remain lucrative for traders as markets remain largely in a contango.

The financing deals are keeping premiums high by keeping supply off the market, the first trader said. "The politically correct way to characterize the current warehousing situation is, ‘They’re aggressively sourcing more material.’ The politically incorrect way of saying it is, ‘They’re vacuuming it up.’"

Still, a consumer source told AMM he is having no problem getting his hands on metal, and has even managed to get some discounted premiums. "There seems to be availability of P1020, We’re looking to buy some spot now to fill in our orders," he said. "I would say 11.5 (cents) is probably reasonable at the moment, but in my view I can push that. My producers are offering me discounts."

Sinking LME aluminum prices spurred some buying interest earlier in March. Three-month aluminum ended the March 28 official session at $1,910.50 per tonne, down 1.1 percent from $1,932 at the beginning of the week and 11.8 percent below this year’s high of $2,165.50 per tonne on Feb. 15.

A third trader said most of his consumers were covered in the past week. "There was a lot of activity two weeks prior when the LME price dropped. While pricing has continued to drift lower, it hasn’t dropped to substantially lower levels. And I think people got a lot of business done two weeks ago (so they’re set)," he said.

"It’s quiet because of Easter," a fourth trader said.

While some consumers may want to resist the historically high Midwest premiums, the first trader pointed out that global producers are operating below their breakeven point at the LME prices, so high premiums are actually helping them stay afloat.

"Producers really are in a world of pain right now. The high premiums are keeping them from going bankrupt," he said. "And how would that help consumers (if they went under)? They need aluminum."

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