aluminum premiums held steady this week despite announced
reforms to London Metal Exchange warehouse policies and buyer
anticipation that tags should tumble in the coming months.
spot P1020 aluminum premium was unchanged Nov. 14 at 10 to
10.25 cents per pound.
Producer and trader
sources reasoned that premiums remained on firm ground because
of fair demand, supply cuts and metal remaining locked up in
financing deals despite the LMEs move to shorten queues
at congested warehouses.
everywhere, but not a drop to drink," one trader said, adding
that the replacement units of P1020 were expensive despite high
A second trader said
his company was refusing to sell metal for Midwest premiums
below 10.25 cents. "It comes down to who has the metal. And if
you have strong hands, you dont have to sell it at a
discount," the trader said.
"The initial thought
was people would be aggressive sellers. But that just
didnt come to pass," he said, noting that even if metal
leaves LME-listed warehouses, it can be refinanced in less
expensive off-exchange sheds.
Physical demand, and
not financing deals, are supporting current premiums, a
producer source said, noting that the Midwest premium was more
attractive than premiums offered by warehouses.
Strong demand from the
North American automotive sector, a nascent recovery in North
American building and construction, and supply cuts in South
America that are driving up Brazilian demand for North American
material are also supporting premiums, the producer said.
"Demand has actually been pretty good, especially for the
fourth quarter," he added.
But consumer sources
questioned the logic of premiums holding steadyor, in
some cases, risingin a global market characterized by too
much capacity, too little demand and falling aluminum
The cash primary
aluminum contract ended the LMEs official session at
$1,740.50 per tonne (79 cents per pound) Nov. 14, down 18
percent from a 2013 high of $2,123 per tonne (96.3 cents per
pound) Feb. 15.
In addition, LME rules
announced last week were more aggressive than expected, which
should have weighed on premiums, the consumer sources said.
"It doesnt make
sense at all," one consumer said. "But I wouldnt
underestimate the ability of traders to rally together to
protect their nest egg."
Parties with long
positions might be trying to talk up the market, a buyer source
said, but agreed that production curtailments and financing
deals might be keeping supplies tightat least for
Premiums could fall in
late 2013 or early 2014 as the date approaches for the new LME
rules to take effect, the buyer said. "Banks felt OK doing
financing deals because they had a known in the LME if they
wanted to get out of their positions," he said. "As these
financing deals roll off, it will be interesting to see whether
the financial community will have an appetite for risk or
whether theyll be looking to get rid of metal."
The LME has shortened
the limit on the length of queues it will permit at individual
warehouse locations to 50 days from a 100-day limit proposed in
July. The exchange expects the proposal to be implemented April
1, 2014 (
amm.com, Nov. 7).