premiums for P1020 aluminum increased this week as big price
declines on the London Metal Exchange led traders to hold onto
metal and producers to push for higher premiums in an attempt
to stem losses, market participants said.
Midwest premium increased to 11.75 to 12.25 cents per pound
June 26 from 11.6 to 12 cents previously.
"Everybody is soaking
metal into warehouses and nothing is coming out. And if you are
buying from producers, they are selling through the traders who
are driving up the premiums," one consumer said. "No one is
realistic about what the premiums should be. Your beer (can)
producers are not real happy.
held 5.45 million tonnes in stock worldwide June 27, up about
200,000 tonnes from mid-June, according to data from the
exchange. The cash aluminum contract ended the LMEs
official session at $1,719.50 per tonne, crashing 19 percent
below the 2013 high of $2,123 per tonne recorded Feb. 15.
Some attributed the
increase in stocks to producers looking to deliver as much
excess metal as possible into warehouses before the end of the
"That (stock) data is
posted, which is bearish for LME (prices)," a market observer
said. "But its bullish for premiums" because the wide
contango that has developed in the market has made warehouse
financing deals profitable again, meaning stocks are likely to
be unavailable for consumption.
"Its an even
better carry than it was a month ago," he said. "So metal is
getting tight because people dont want to let it go or
unwind their hedges." Demand may not be good, "but people need
metal whether business is 50 percent or 100 percent."
The decline in LME
prices also has led traders to hold onto aluminum scrap,
another supportive factor for P1020 premiums as consumers
cant turn to the secondary market for feedstock, other
"The LME being where
it is now doesnt help because anyone who bought scrap on
the way down doesnt want to sell it until it goes back
up," one trader said.
possible smelting capacity curtailments in light of lower LME
prices also are supporting premiums in the United States, he
A second trader
agreed, noting that any meaningful capacity cuts would likely
have to come from the West because even as China shuts older
production capacity it is bringing on line more modern
smelters. "If we stay down another month or two, Im sure
(western producers) will consider curtailments," he said.
The second trader said
that while his company had seen limited spot activity this
week, it has seen strong interest in fixed-forward business
into 2014 or beyond as buyers look to lock-in current low
prices. "We are at close to four-year lows on LME aluminum
prices, so everyone is taking advantage of it," he said.
A third trader said
that high premiums also were a matter of replacement costs. "To
buy at 11.75 (cents) and sell at 11.75 (cents)and we pay
cashmeans we dont make any money," he said. "So the
consumers have to pay more or (traders) will hold onto metal
units and not sell them. No one is getting discounts anymore.
... Maybe discounts will come back, but only if the premiums go