aluminum premiums held mostly steady in the past week but
remain pressured as debate lingers over whenand to what
extentthey might fall due to proposed changes in London
Metal Exchange warehousing rules.
While concerns have
been raised about the impact of the LME proposal, aimed at
reducing long lines at some warehouse locations (
amm.com, July 1), market sources agreed that a cap
had been placed on premiums until the effects are clear.
spot premiums for P1020 remain unchanged at 11.75 to 12 cents
"Premiums are going to
be under pressure. Theres no question about it. But it
probably wont happen overnight. All we know is (premiums)
arent going to go any higher," one market observer said,
adding that primary scrap grades are in short supply and buyers
are hard-pressed to find prompt metal at a discount.
The market is
essentially in a standoff, he said, noting that while the LME
rules havent been ratified, cautious consumers want to
buy spot rather than even one to three months forward.
The new rules, if
implemented, wouldnt come into effect until April 2014
amm.com, July 11).
"Now its up to
the traders. How do they unwind their positions?" the market
observer said. "Its going to be a matter of greed. Who is
the first or second guy out to make the killing and possibly
sell at a discount and leave the others with the problem of
what to do with their metal?"
Business has been
quiet because of a traditional summer slowdown and as market
players digest the proposed LME rules, one trader said. "You
have to trade your book like (the LME) is going to take
action," he said, noting that an LME-related premium drop could
lead to production cuts. "Either way you look at it, this takes
metal units out of the Midwest."
Even the Midwest
premium swaps market has "gone completely quiet," with buyers
pulling back because they see the "writing on the wall" about
premiums sliding, a second trader said.
At the same time,
sellersmostly traders and banksdont want to
quote the Midwest premium in forward months because they
dont want to reveal their expectations, the second trader
said. He predicted that a "V-shaped" market could result if
premiums and LME prices fall, forcing some producers to shut
while metal remains locked away in warehouse deals as the
A third trader said
the market is in a state of paralysis over the proposed rules
even as physical business appears to be healthy for mid-July.
"No one is complaining. Everyone I speak to says their order
books are doing well," he said.
But the biggest change
might be that producers no longer have an easy "slam dunk" for
their metal if the warehouse rules are adopted, the third
trader said. Producers "should be running around checking with
consumers about what they need and making some alternate plans
for the future. For a long time now, I think some of them have
been content to put everything in warehouse and have maybe
neglected some of their customer relationships."