P1020 aluminum premiums have inched up over the past week amid
a combination of attractive warehouse financing deals, a tight
scrap market and increased freight costs, market sources
But while market
players contacted by AMM generally agreed that
premiums had risen modestly, most also said demand from
physical end-users hasnt increased.
Midwest premium range has moved to 11.6 to 12 cents per pound
from 11.5 to 12 cents previously.
The biggest factor
driving premiums upward is that warehouse financing deals are
profitable because spreads on the London Metal Exchange are in
contango, one trader said. "Demand is just average: not great,
but not awful either," he said.
The trader conducted
deals at 11.6 to 12 cents per pound over the past week at
volumes ranging from 100 tonnes to roughly 5,000 tonnes, he
said. However, transactions at 11.6 cents were largely
available only at such locations as Oswego, N.Y., that
generally see a discount relative to the rest of the market, he
"There is a nice
contango in the market, so people will just hold on to the
metal if they dont get the premium they want," a second
Low LME prices are
also causing some scrap dealers to hold on to material because
of contracts linked to the exchange, he said. This has created
tightness in the scrap market in some regions of the United
States, he said.
The cash aluminum
contract ended the LMEs official session at $1,813 per
tonne June 13, down 5.9 percent from $1,927.50 per tonne June 6
and off 14.6 percent from a 2013 high of $2,123 per tonne
recorded Feb. 15.
A third trader
contended that produce season, delayed by bad weather in parts
of the United States, has limited truck availability as
trucking firms move more profitable "reefers," or refrigerated
containers, instead of flatbeds for metal. Storms, especially
in the Oklahoma City area, have also seen trucks diverted from
their typical lanes to provide supplies to hard-hit areas, he
said, adding that high fuel prices and more stringent
government regulations are also driving up freight costs.
But the third trader
questioned the health of the overall market, noting that his
company had seen a quiet market for Midwest premium swaps and
no recent inquiries to buy or sell physical metal. In theory,
premiums should be bolstered by limited and high-cost trucking
capacity, a market in contango, tight scrap and the possibility
of more aluminum production coming offline unless LME prices
recover, he said.
"But at the end of the
day, people need to buy metal if you are going to see support
for (higher) premiums, and its not clear that that is
happening," the third trader said.
One producer source
said his company recently booked 1,000 tonnes at a premium of
11.9 cents, with other recent deals ranging from 11.75 to 12
cents. But he, too, cautioned against bullish predictions of
"There have not been
many developments (in the market)," the producer said, adding
that most of his companys spot transactions have been
above published price levels for some time.