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 published prices.
AMMs Midwest premium is unchanged in a range of 11.2 to 11.85 cents per pound.
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 remain profitable.
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 warehouses.
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 said.
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.