premiums for P1020 aluminum held steady this week, but outlooks
were mixed on its future direction.
Midwest premium remains unchanged at 11.6 to 12 cents per
While several market
sources are predicting an increase, others question whether
such a movewhile possible and perhaps likelywould
are a tight scrap market that is boosting P1020 demand as a
scrap substitute, warehouse financing deals that remain
profitable amid low interest rates and forward spreads on the
London Metal Exchange that are in contango, and limited
availability because of long queues at LME-listed warehouses,
market sources said.
Several market players
pointed to metal moving into Detroit at an increased clip in
recent days, perhaps from other LME-listed warehouses.
"Things are quite
strong. ... We saw a tick up (in business) after a slow April
and May," one trader said, citing a recent transaction of
500,000 pounds at a premium of 12 cents per pound. But the
trader also lamented that published Midwest premiums were
generally not reflecting his companys replacement
A consumer source said
P1020 demand and Midwest premiums were little changed from last
week. Scrap continues to be tight in some regions of the United
States, meaning remelters in some cases are sourcing P1020 as a
scrap substitute, he said.
The situation has been
exacerbated by a trend of soft drink and alcoholic beverage
producers switching to aluminum cans, squeezing availability of
used beverage cans (UBC), the consumer said.
However, other than
scrap substitution and profitable warehouse deals, there is
little support for premiums at or above 12 cents per pound, he
said. While the consumer noted a recent purchase at 12 cents,
he said it was for a small order and material could still be
secured at 11.6 to 11.75 cents for larger buys.
A second trader said
his company conducted most spot P1020 business at a Midwest
premium of 11.75 cents, although there were relatively few spot
inquiries despite LME prices hitting new lows.
"People should be
coming in to buy more metal at attractive prices, but
were not seeing thatso the expectation is that the
price might drop a little more," the second trader said.
The cash aluminum
contract ended the LMEs official session at $1,748.50 per
tonne June 20, down 5.1 percent from $1,843 per tonne June 12
and 17.6 percent below the 2013 high of $2,123 per tonne
recorded Feb. 15.
The second trader and
other market sources also questioned how long Midwest premiums
could continue to climb as LME prices explore new depths.
Midwest premiums are essentially at parity with premiums in
Japan, an anomaly given that Japanese premiums tend to be
higher, he said.
"Producers need the
(high) premiums to stay above water," the second trader said.
But even with high premiums, producers in some cases still
arent able to reconcile their costs of production with
low LME prices, he warned.
The second trader also
speculated that at some point consumers might begin to balk at
high Midwest premiums and cautioned producers against relying
on premiums alone to meet production costs.
A third trader echoed
that sentiment. "One direction: bullish. I heard (the Midwest
premium) is going to 42 cents," he joked, also agreeing that a
tight scrap market and no backwardation on forward LME spreads
were supporting premiums.
rates dont rise, the outlook for premiums should, in
theory, continue to be bullish, he said, although he expressed
concern about the physical market.
Warehouse deals have
created artificial tightness in the market and encouraged
producers who might otherwise have idled production by now to
keep running, the third trader said. "They are flooding the
market with inventory, and the only thing saving them is
premiums at 12 cents. Otherwise capacity would be shutting left
and right," he said.
Instead of shutting
capacity, producers will most likely opt not to restart
capacity that has already been idled, the third trader added.
"The problem is, that doesnt really have any impact on