European physical aluminium: Market uncertain due to duty cut

With the European Commission's admission earlier this week that it would be impossible for the proposed two-phase cut to the European Union's 6% unwrought aluminium import duty to be passed this year, the market remained on the sidelines amid the continued uncertainty. Many market players have opted not to trade at all, rather than be caught out with higher priced material in the case of a duty cut. And while spot trade was heard extremely thin with only one duty-paid deal heard done at $165/mt for prompt, plus LME cash, market sources mostly agreed that duty-paid material was bid at unpaid plus the 3% duty and offered at unpaid plus 6%.

An EC spokesman told Platts Wednesday morning that the duty cut proposal was still being finalized at the commission level, but was expected to be wrapped up within the day. Earlier this week he said and it would be "impossible" for it to go before the Member States committee before the end of this year, meaning that any cut would not take effect from January 1 as anticipated. "The commission has no idea of the impact this is having on the market. How are people expected to contract with all this uncertainty," a consumer said, adding that most contracts were being booked at unpaid of $65-75/mt plus the duty, when and if any change is brought in. A trader source said duty-paid was in the range between unpaid plus 3% and 6% respectively. "This whole duty thing is just a mess. Everyone is holding off to see what happens," he said. A European trader said he had bought a sizeable clip of prompt duty-paid at $165/mt this week, even though offers were still around $200/mt.

"With the backwardation, premiums are under pressure and by early January they should be at $140-150/mt. A producer source said no one wanted to trade at the moment. "Everyone is stuck between a rock and a hard place with the duty," he said, adding that the only deals being done were where people were offering material at a set number with no recourse, should there be any change to the duty. "People are trying to carry as little material as possible though, pending any duty cut," he said. Market sources agreed that unpaid was steady at $65-75/mt both on a spot basis and at a contract level for 2007. Another trader said Russian unpaid material was being offered at $70/mt on an in warehouse basis for January, while FOB St Petersburg was at $35/mt. A producer said there was no A7E metal for spot. He noted however that the market was seasonally inactive and even 2007 negotiations were rather slow. "We still have several contracts to be fixed," he said.