Regional aluminum premiums should gradually decrease to levels
last seen 18 to 24 months agoor even four to five years
agodue to the new London Metal Exchange warehouse
policies, Novelis Inc. chairman and chief executive officer
Philip Martens said.
"Over time, I think
you will see a moderation of regional premiums. ... But it
wont happen overnight," Novelis said Nov. 11 in an
exclusive interview with AMM.
aluminum roller and recycler generally passes through regional
premiums in North America and Europe and should be unaffected
by moves either way in those markets, Martens said. The main
impact likely will be felt in Asia, where Novelis is exposed to
Japanese premiums, which have increased sharply, while its
competitors in China do not face the same cost increases, he
Japanese premiums were
in a range of $70 to $80 per tonne in mid-2012 before spiking
to $240 to $250 more recently, Martens said. "I think it will
slowly unwind itself. It just takes time."
Midwest premiums have
already edged down and Japanese premiums likely will follow,
just as in the past Midwest tags rose before those in Japan,
Martens said during an earnings conference call. But he
conceded that the company likely would face "real pricing
challenges" in Asia for the next 12 to 24 months.
In the meantime,
Novelis is "very pleased" with the LMEs changes aimed at
reducing wait times for metal at congested exchange-listed
warehouses and boosting transparency, Martens told
AMM. The moves were necessary, given an aluminum
market that he characterized as "abnormal" and in need of
reforms to re-establish a "better balance."
in a situation where its clear that its financial
engineering and there is no value-add to the products that get
produced from whatever commodity is involved, that stuff always
has a limited shelf life," Martens said. "Youve just got
to be patient with it because none of that stands the test of
timeit never has and it never will."
JPMorgan Chase & Co. has already decided to step away from
its physical commodities business (
amm.com, July 26) and others have started to do so
as well, Martens said. "Banks and financial institutions
ultimately will reallocate their capital to different
Wide contangos have
made financing deals attractive to investors, given low
interest rates (
amm.com, Oct. 24), but banks and the LME also have
faced sharp criticism over warehousing policies from end-users,
producers and politicians (
amm.com, July 23).
The LME has cut the
limit on the length of queues it will permit at individual
warehouse locations to 50 days, down from a 100-day limit it
proposed in July (
amm.com, Nov. 7).