Price setting paralysis in European aluminium

The European aluminium market has been thrown into confusion by the European Union's plans to reduce import duties on primary aluminium, preventing producers of the metal and their customers from being able to agree on prices.

EU members are understood to have agreed to cut the import duty from 6 to 3 per cent but Peter Mandelson, European Commissioner for trade, has proposed that the duty be abolished entirely from January 2009.

This proposed additional cut has split EU members.

The result is that the EU has been unable to vote on the initial cut to 3 per cent that was to take effect next month, leaving the European aluminium industry paralysed over setting prices.

"I am unable to quote an aluminium price for next year because we still don't know what level the import duty is going to be," said one trader with a European producer of primary aluminium.

Aluminium price premiums for spot delivery, which include the paid-duties, have ranged from $160 to $245 above the three-month aluminium price on the London Metal Exchange, which was quoted at $2,867 a tonne yesterday.

"I have never seen the spread on prices so wide," said one London-based metal trader. ". . . because there is such a large gap in prices, the market is unable to agree on a final price and therefore it has brought the market to a standstill."

Metal is still flowing from producer to consumer on the basis that a final trade price is agreed once the EU finalises the new duty.

But a final proposal on the duties is unlikely to be determined until the new year, which means there will be a delay to the planned introduction of the new duty. It was expected that a final proposal would be voted on at a December 20 meeting by the EU Council of Ministers but this will not take place.

The EU is the last big regional market to impose an import duty on primary aluminium, a charge the consumer pays. The consumer is typically a fabricator that turns the metal into a semi-finished product that can be used by the automotive and packaging industries.

Although fabricators support the EU's plans to reduce the import duties on primary aluminium, they are concerned about plans to cut the duties on semi-finished aluminium products.

This would hit their financial viability because end users in the packaging and automotive sectors could source cheaper semi-finished material from Russia, China and the Middle East.