CHICAGO Midwest spot
aluminum premiums have remained largely unchanged over the past
week despite continued and considerable disagreement over the
direction of the market.
While some market players insist
that published premiums are lower than actual business
transactions, others contend that reported premiums for P1020
are too high in a market characterized by discounting to
premium is unchanged in a range of 11.2 to 11.85 cents per
While overall physical demand
for P1020 is "not great," one trader said premiums are higher
than published reports due to continued strength in the
automotive sector, attractive warehouse financing deals and
tight scrap markets.
The trader pegged premiums at
around 12 cents to the Midwest and higher to other regions,
especially the Southeast. He also suggested that possible
curtailments in production capacity could bolster premiums.
The trader conceded that there
are substantial volumes of metal in storage, but said that
"people are content to sit on it" as long as warehouse deals
But other sources strongly
disagreed, saying that scrap prices and availability have eased
with warmer weather, lessening demand for P1020 as a scrap
substitute. One market observer said premiums were at best 11.5
cents and "barely holding there," given increased scrap
availability and anxiety about the amount of material in
Investor interest is shifting
toward equities and away from commodities at the same time that
the possibility of rising interest rates "undoing" the logic of
warehouse deals is becoming more pronounced, he said.
"The only things keeping (prices
and premiums) up are warehouse deals. ... And the sheer amount
of material in warehouse is creating concerns about the
sustainability of even relatively low (aluminum) prices," he
A second trader agreed. "Prices
started going up (last week) on the back of hope. ... But there
is nothing there," he said, predicting that cash aluminum
prices on the London Metal Exchange would tumble this week.
The cash aluminum contract ended
the LMEs official session at $1,825.50 per tonne May 14,
down slightly from $1,827.50 per tonne a day earlier and 0.9
percent lower than the May 7 price of $1,841.50 per tonne.
The second trader said his
company continues to make deliveries but not at the volumes
expected, and it is losing business even at premiums discounted
to those published.
"People who are saying (the
Midwest premium) is 12 cents are long and trying to talk it
up," the second trader contended. "Suppliers are telling us
they have metal. ... So there is not much demand, and there is
plenty of supply."
Still, one consumer questioned
arguments about premiums making a sharp move in either
direction, pegging them at 11.5 cents for most spot deals. He
characterized business activity as good, with automotive and
aerospace strong at the same time that building and
construction is picking up, especially in the South. He
predicted that 2013 could see a strong pickup in the fall
months instead of the first-quarter surge that has
characterized markets in recent years.