CHICAGO Midwest aluminum premiums continued to hold their ground this week, with market participants describing current price ranges as either stable or poised for a rebound.
Supporting premiums are a market contango that is bolstering demand from the financial community, tightness in some regions of the United States due to production shutdowns, more disciplined pricing and main Japanese port premiums attracting metal to Asia, market participants said.
The latter factor was noted during a recent earnings conference call by Oslo, Norway-based Norsk Hydro ASA. "If you look at the recent quotes of ingot premiums, they are down 15 to 20 percent compared to the highest recorded levels. But Japanese premiums are holding up around $250 per tonne (11.3 cents per pound)," president and chief executive officer Svein Richard Brandtz said. That could be due to the fairly tight ingot market in Asia and because the region is less impacted by potential changes to London Metal Exchange warehouse rules (amm.com, July 1), he said.
AMMs spot P1020 aluminum premium was unchanged Oct. 23 at 9.5 to 10 cents per pound, although some sources reported smaller deals at numbers slightly above that range.
"Units are a little bit tighter, so some customers are saying its getting tougher to get prompt delivery," one trader said. "And (financial buyers) can just stick it into a warehouse, gain the contango and finance it, which is supportive of nearby premiums."
One market source said he also was seeing premiums strengthen due to a tight scrap market that is pushing extruders to use more P1020, as well as Ormet Corp.s shutdown (amm.com, Oct. 4).
But not all are convinced that premiums are firming, yet alone rising.
Speculators looking to establish a long position might be willing to pay more than 10 cents, but physical consumers continue to insist on single-digit premiums, a second trader said. "Sure, some metal is going overseas, but that kind of arbitrage goes on all the time."
A third trader questioned the logic of premiums going up ahead of a traditionally slow November and December. "Yes, some people are out looking for metal," he said, "but the market is quiet."
That calm comes in part because his companys "mating season" for 2013 business is winding down, the third trader said. Echoing others, he said most long-term deals for 2014 were transacted on a floating premium basis. "Everyone wants to travel with the same herd," he said.