CHICAGO Midwest aluminum premiums are continuing to drift down as harsh winter weather and purchases ahead of expected premium increases have decreased spot activity and lowered prices, market sources said.
AMMs spot P1020 premium range slipped to 20 to 20.5 cents per pound Feb. 12 from 20.5 to 21 cents previously.
Suppliers and consumers both said they expect prices to continue to edge lower, with some claiming that premiums were moving into the upper teens and could fall significantly further.
"Unless they have pressing needs, (consumers) arent going to pay these numbers," one trader said. "There was an unprecedented jump up, and it could happen the same way on the way down."
AMMs spot P1020 premiums shot from 11.5 to 12 cents per pound at the start of January to as high as 21 cents by the end of the month (amm.com, Jan. 30).
Consumers dont need metal because they loaded up earlier this year on fears that stratospheric Midwest premiums would move even higher, and perhaps to lock in low London Metal Exchange prices, some supplier sources said. Buyers have probably fulfilled their requirements through the end of March and, in some cases, through the end of May, they said.
In addition, severe winter weather has caused production and logistics problems that might be denting demand, market sources said.
Bad weather usually restricts scrap flow and pushes transportation costs higher, a trend that in the past has led to higher premiums, some suppliers said.
"Scrap is tight and trucks arent moving nearly as much metal as they could in theory, which should push prices upbut its just not happening," a second trader said.
Consumer sources said bad weather was pushing pricing down because it had slowed their operations or those of their customers, reducing requirements and, in some cases, forcing them to cancel orders.
"This winter has across the board caused problems for manufacturing," one consumer source said. "You have some customers not making (auto) parts on time because theyve lost two to three days of production. It doesnt take too much of that to have a real impact on demand."
Other market sources brushed aside the idea that prices or demand would take a long-term hit, claiming that both would resume their upward march as the snow begins to melt. "February is a short month, the weather slowed things down even more and people bought ahead," one producer source said. "But things usually pick up in March."