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Midwest spot aluminum premiums slip

Keywords: Tags  Midwest premium, P1020, P1535, LME, London Metal Exchange, aluminum prices, aluminum premiums, discounting aluminum scrap

CHICAGO — Midwest spot aluminum premiums have dipped over the past week amid concerns about the global economy, the state of the commodity markets and the possibility of a decline in P1020 demand.

Still, some market sources insist that they have not seen or been offered any discounts, arguing that scrap showed no signs of loosening and premiums showed no indication of falling.

AMM’s Midwest premiums have dropped to a range of 11.2 to 11.85 cents per pound from 11.5 to 12 cents previously, with some market sources reporting big-volume deals at even lower figures.

"Some people are saying 11.8 to 12 cents, but I am not seeing those sales," one trader said. "We are holding. ... But if we’re losing business at 11.45 cents, then someone is selling cheaper."

The trader ticked off a list of reasons that might account for the discounting, including a bad week for commodities and equities and a lack of buying activity despite a sharp drop in London Metal Exchange aluminum prices.

The LME’s cash aluminum contract reached a recent low of $1,804 per tonne April 15, down 15 percent from a 2013 high of $2,123 per tonne recorded Feb. 15. Prices have rallied over the past week, with the cash aluminum contract ending the official session April 18 at $1,874 per tonne.

"If you ask most people, you will see orders are down," the trader said. "The tone on Wall Street and in commodities isn’t going to help. It just creates more fear and hesitation."

Several market sources said that an extremely tight scrap market, particularly in the southeastern United States, had pushed up premiums as buyers looked to prime as a substitute for scrap. But the trader said that customers who can use P1020 instead of scrap aren’t buying it at expected volumes.

"There is blood out there. ... And everyone is in denial," the trader said. Warehouse financing deals profitable while LME prices are in contango may no longer be enough to bolster premiums, he added. "It’s enough to keep (premiums) from collapsing, but it’s not enough to push them higher."

One consumer source said that he had seen discounting increase by about 0.25 cent per pound. "I have zero problem getting metal," he said. "The question is how big of a discount I get. And what I’m seeing is that I’m able to get bigger discounts than I was able to get in the winter."

The consumer source said he wasn’t sure what was behind recent discounting, given that the LME market is not in backwardation and demand has not changed. He speculated that traders selling P1020 might be anticipating greater scrap availability in May as the weather becomes milder and scrap flows improve. "Maybe someone is trying to get a jump on that position" and sell P1020 before it loses its price advantage over scrap, he said.

But the consumer source said he was not anticipating any enduring trend toward lower premiums, arguing that the dip doesn’t represent a sea change, given that premiums are at historic highs.

Other sources strongly disagreed with downbeat assessments of premiums. "I haven’t heard of any discounting at all. If there is any, I’m not getting it," a second consumer source said. Like other market sources, he pointed to a tight scrap market supporting premiums and an expected seasonal uptick in demand, albeit one that may occur later this year than in 2012 because of bad weather.

A third consumer source said that business had slowed in general but he hadn’t seen any discounting—at least not officially. Discounting has occurred on offgrades, such as P1535, he said. "Sometimes it’s P1535. But other times it is P1020 they actually deliver. It’s their way of not upsetting the market and saving face."

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