CHICAGO Midwest aluminum premiums weakened this week as a quiet market and uncertainty about London Metal Exchange warehousing rules continued to push prices down.
Also dogging the market were wide bid-ask spreads, with some buyers reportedly seeking premiums as low as 9 to 9.5 cents per pound while sellers were pushing for 10.25 to 10.5 cents, market sources said.
"Its pretty quiet. Ive seen some interest, but its tough to get anything done," one trader said. "The bids are below market value, and the offer side is a little high unless you need something prompt."
AMMs spot P1020 aluminum premium range narrowed to 10 to 10.5 cents per pound Sept. 11 from 10 to 11 cents previously.
Some market sources said premiums were at or near bottom due to support from contangos on the LME and proposed changes to LME warehousing rules. Moreover, capacity cuts already implemented or anticipated should further bolster prices and premiums, they said.
The LME proposals aim to cut long lines for metal in congested warehouse locations (amm.com, July 1).
But others sources said premiums would continue to slide until the impact of the LME rules was clear, especially given the large volumes of aluminum in LME warehouses and even greater amounts in non-registered sheds, adding that announced capacity cuts are not enough to bolster prices or premiums as smelters look for better power deals to remain in production instead of trimming output.
Wide bid-ask spreads for future business suggest divergent outlooks for late 2013 and 2014, market sources said, although they also could result from posturing ahead of contract negotiations expected to take place at the Institute of Scrap Recycling Industries Commodities Roundtable Forum in Chicago Sept. 16-18 and AMM sister publication Metal Bulletins International Aluminium Conference in Geneva Sept. 17-19, sources said.
"To draw a weird analogy, everyone is afraid to ask the girl across the gym whether she wants to dance," a second trader said. "Do you ask for 2 cents lower and risk not getting it or go to the next-best-looking deal?"
Other market sources blasted each other for trying to influence the market by selectively reporting transactions to trade publications, with some sellers, for example, said to be divulging only small-volume deals concluded at higher premiums and keeping bigger transactions at discounted premiums close to the vest.
"People are long and talking their books now. And if they do deals below 10.25 (cents) theyre not going to report those deals; theyre only going to report the 50-tonne deal they did at 10.5 (cents)," a third trader said. The lack of transparency is creating uncertainty in the market and hindering business, he said. "This thing (Midwest premium) is going down. Thats what it comes down to. We can all be in denial. But its coming down."
The stalemate also comes as smelters are reported to be increasingly willing to talk to retail customers again instead of looking to sell primarily to traders and warehouses, market players said. "It was predictable. The warehouses were big customers. And now (smelters) have to find another outlet for (metal)," a consumer source said, noting that the change comes as attractive premiums offered to producers by warehouses had all but disappeared.
Smelters rarely acknowledge that they might have ignored former customers while devoting tonnage largely to traders or warehouses, the consumer source said. "But we all know that when you tried to deal directly with them, it was difficult to put together anything that was in any way reasonable."