European physical aluminium: Duty-paid premiums firm

As the London Metal Exchange cash-to-threes backwardation has eased and the supply of duty-paid material in the market has tightened up, duty-paid premiums have reverted to being quoted at unpaid plus the full 6% import duty, producers, trader and consumers agreed this week. And while the backwardation was still a major factor in physical material pricing, it was mostly having an
impact on material for prompt delivery with most of the spread tightness being around the cash-to-March backwardation -- hovering at $25-35/mt this week, based on LME cash settlement figures. The tighntess in this spread is largely due to the dominant nearby position held in the aluminium market.

A producer-buyer said premiums for duty-paid below $200/mt no longer existed." The backwardation is all over the place, but demand is picking up," he said. A trader said duty-paid was easily in the $180-200/mt range, adding that he had sold duty-paid at $205/mt on an in-warehouse Germany basis and in-warehouse Italy material at $240/mt, both plus LME cash. "There are no customers buying under $200/mt. But the back is less fearful, so market levels are less distorted," he said, adding however that despite the increased confidence no one wanted to be too long or too short. He said he would be happy to sell unpaid at $35-40/mt on a prompt basis. A second producer-buyer said trading on the spot market these days was like "taking a shot in the dark" due to the backwardation. He said while he had done most of his business for Q2, spot prices were around $190/mt plus LME cash for prompt delivery and spot unpaid material was $40-50/mt firming up to around $60/mt for Q2.

He said spot demand was "more hand-to-mouth" than it used to be. "Last year consumers got spooked and booked for the full year in 2007 to make sure they had material," he said. Offers for in-warehouse Rotterdam duty-paid material were $185-195/mt plus LME cash, a consumer source said, adding that unpaid material was "cheap" at $35-45/mt, since there was excess material in the
market. A producer source said duty-paid material was still equivalent to unpaid plus the full 6% duty. "Unpaid has increased because the back has diminished," he said, adding that he was doing unpaid spot business in the $200-215/mt range. He said nearby unpaid was at $50/mt, while for April onwards it was at $60/mt. A second consumer said it was very difficult to get material anywhere near $180/mt anymore and he had bought a "a few thousand tonnes for March and Q2 closer to $200/mt." He said no one was really sitting on material due to the backwardation and any fresh metal coming in was already booked.