CHICAGO Midwest spot
aluminum premiums remained unchanged last week amid what
appeared to be considerable uncertainty about the direction of
Some market players insist that
premiums are poised to move upward, citing profitable warehouse
financing deals, the use of P1020 as a substitute for scrap and
the possibility of continued low prices on the London Metal
Exchange forcing some smelters to shut, thus reducing
The LMEs cash aluminum
contract ended last week at $1,890 per tonne, up 4.8 percent
from a recent low of $1,804 on April 15 but down 11 percent
from a 2013 high of $2,123 per tonne on Feb. 15.
premium was unchanged in a range of 11.2 to 11.85 cents per
"The only way things are going
to get better is if (smelters) shut. No one wants to shut. But
someone has to take the pain," one trader said.
A second trader agreed, saying
that low LME prices represented a "ticking time bomb" unless
they stage a strong rally and give smelters a "stay of
execution." If they dont, capacity will close and "will
completely change the landscape of the market" as supplies
But other sources said the
current market is anything but tight, claiming some
participants may be trying to talk up premiums in an effort to
cover long positions and avoid seeing the value of big
stockpiles decline. Still others suggested that producers, hurt
by low LME prices, might have motive to talk up premiums, which
at historically high levels could mean the difference between
turning a profit or losing money.
Some sources said that capacity
being idled was hardly a foregone conclusion, arguing that even
if some domestic smelters were to shut, there would still be
too much production globally, given what was generally
characterized as steady but not robust demand.
Sources also disagreed over
whether a backwardation in the LME spreads might put downward
pressure on premiums, with some contending that the
backwardation had not been consistent enough or pronounced
enough to make much difference. "It doesnt seem to be
affecting the market," one producer source said.
LME price movements aside, some
market observers said the market does not look encouraging from
the ground level.
"We have two or three traders
really trying to get metal through our door. Whether
thats just aggressive marketing or because they have long
positions, I dont know," one consumer source said.
"Everything I hear out there is that there is a lot of metal
sitting around ... all dressed up with nowhere to go."
"I dont think anyone is
talking about order books being dramatically better," a second
consumer source said. "If anything, a lot of people are
probably feeling less certain about the economy than they were
a few weeks ago."
While premiums may be bolstered
by P1020 being used as a replacement for scrap in the short
term, that factor will fade as spring weather sees increased
scrap flows, he said.
A third trader agreed with the
consumers. "There is no 12 (cent Midwest premium). People are
saying, I can sell at 12. But there is discounting
going on," he said, noting that he was losing business trying
to sell material at a Midwest premium slightly below 11.5
cents. "It gets to the point where the gig is up, and I think
the gig is up. People have to sell tonnage. And at some point,
if it doesnt go to the LME, it has to go to the market.
And if it goes to the market, there are going to be