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Aluminum premiums hold despite mart anxiety

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

CHICAGO — Midwest P1020 spot aluminum premiums largely held steady this past week despite concerns that already tepid buying activity would slow further and chatter about premiums potentially softening along with industrial activity.

Sources debated whether the thin market signaled a slow return from spring holidays or deeper problems in the economy.

The inactivity has led AMM to keep its Midwest spot aluminum premiums unchanged at 11.5 to 12 cents per pound, but limited tonnages were reported to have been transacted at premiums as low as 11.25 cents.

While most sources agreed that demand from the transportation sector, and particularly the automotive market, remained firm, some said that initial forecasts about automotive aluminum demand in 2013 might have been overblown.

Market participants also questioned why there hadn’t been more activity, given low London Metal Exchange aluminum prices. "I would expect with the market dropping that we’d see more forward buying, but it’s been very quiet," one trader said.

The LME’s cash aluminum contract ended the official session at $1,845 per tonne April 5, down 1.9 percent from $1,881.50 per tonne on March 28 and 13.1 percent below the 2013 high of $2,123 per tonne recorded Feb. 15.

"There is a lack of confidence in the marketplace, even at these low numbers," one market observer said, citing lower industrial production and continued hand-to-mouth consumer buying. "If you would have told people a year ago that they could buy metal at 94 to 95 cents a pound for the second quarter, they would have said, ‘Where do I sign?’ "

The trader largely agreed, saying that talk of a robust economy was unfounded. He also worried that financing deals, which have helped to support premiums, might be losing their attractiveness as investors move into equities offering potentially better returns than commodity metals.

But other sources strongly disagreed with that notion. Some conceded that physical demand might not have proven as strong as initially predicted, but insisted that financing deals were still supportive of high premiums. Several also noted that producers are depending on high premiums, given low LME prices.

And it’s too soon to call 2013 a disappointment, especially for the automotive sector, one consumer source said. The third quarter should see premiums strengthen as it becomes clearer how much more aluminum automakers expect to use in their vehicles in 2014, he said.

Some sources also argued that high scrap prices, the limited availability of some grades and dealers’ unwillingness to part with material linked to low LME prices were continuing to bolster demand for prime metal as a substitute for scrap.

"A consumer who can’t get scrap, he doesn’t look at the premium," the market observer said. "He sees 94 cents for prime vs. 83 cents for mixed low copper (alloy clips). And that’s not a bad deal."

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