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.
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 were 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
The LMEs 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 isnt 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
arent 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. "Its
enough to keep (premiums) from collapsing, but its 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 Im seeing is that
Im able to get bigger discounts than I was able to get in
The consumer source said he
wasnt 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 doesnt represent a sea change, given
that premiums are at historic highs.
Other sources strongly disagreed
with downbeat assessments of premiums. "I havent heard of
any discounting at all. If there is any, Im 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 hadnt seen any discountingat least
not officially. Discounting has occurred on offgrades, such as
P1535, he said. "Sometimes its P1535. But other times it
is P1020 they actually deliver. Its their way of not
upsetting the market and saving face."