CHICAGO Midwest aluminum premiums tumbled this week due
to uncertainty about the potential fallout from increased
regulatory scrutiny of U.S. banks physical commodities
businesses, warehousing policies and the potential for
increased market volatility.
AMMs spot premiums for P1020 dropped to 11.4 to 11.85
cents per pound from 11.7 to 12 cents previously.
Everyone is very cautious, one trader said.
Premiums have definitely been capped. How quickly they
will come down and how much is still in
The trader and other market sources had several concerns, chief
among them a rumored U.S. Commodity Futures Trading Commission
(CFTC) probe into big banks and warehousing firms (
amm.com, July 22
The CFTC declined to comment to AMM or confirm an
investigation. Banks and warehousing companies that have
reportedly been issued subpoenas also declined to comment.
Market sources are also concerned about publicity surrounding
Senate criticism of banks ties to physical commodities
trading and warehousing (
amm.com, July 23
), several class-action lawsuits
amm.com, Aug. 13
) and questions about how both
banks and regulators might respond, though some also said the
lawsuits are frivolous and unlikely to impact the market.
A second trader pegged 2014 offers at premiums of 11 cents or
Also pushing premiums down was a first trade of the CME Group
Inc.s aluminum premium swaps contract (
amm.com, Aug. 10
), several trader sources said,
adding that the deal was transacted at a premium of about 10
cents for November and December 2013.
Anyone looking to sell is going to have to meet
buyers expectations that Midwest (premium) will go down
and their insistence that sales be at a discount, maybe a hefty
one, a third trader said, noting that buyers were also
hesitant given recent increases in aluminum prices but
longer-term uncertainty about the direction of the market.
The CME did not confirm the rumored 10-cent premium to
Other traders, however, questioned whether the market might be
making too much out of one trade of limited tonnage, contending
that aluminum prices are poised to rise because of announced
and expected capacity cuts, better economic data out of China
and elsewhere, and a tight domestic market in some regions,
especially in the southeastern United States.
The cash aluminum contract ended the London Metal
Exchanges official session at $1,835 per tonne Aug. 14,
up 6 percent from $1,731 per tonne Aug. 7 but off 13.6 percent
from a 2013 high of $2,123 per tonne on Feb. 15.
The aluminum market has also been characterized in recent weeks
by an uptick in offgrade material, sources said. Offgrade
material is traditionally more readily available in the summer
because anodes need to be changed more often in warmer weather,
they said. If anodes are not changed, chemistries may
deteriorate, leading to more offgrade production than
anticipated, they said.
But while some market sources said discounts for offgrade
material had widened as sellers looked to offload material into
a falling market, others said the spreads between offgrade
material and P1020 were unchanged or, in some cases, tighter
than in past summers.