Premiums for physical aluminium in Europe are set to rise further over the next few months as the impact of recent smelter shutdowns is felt in the market, raising costs for automakers and packaging companies.
The closures will add to increasing pressure on premiums from financing deals, in which traders buy physical metal and simultaneously sell it forward at a profit, while striking a warehouse deal to store it cheaply in the interim.
The deals, which have tied up most of the record 5 million tonnes of London Metal Exchange stocks, have recently become more profitable as the difference between nearby and forward prices has widened.
A UK based physical metals trader said that "I think premiums are up because of the spreads and because of the cutbacks that have been announced in the UK, Spain and Italy. Over the next few months I see them gaining a bit more ground.”
The traders added that "People who have stock can roll their positions forward at a profit. In lots of circumstances they also make money by holding material because of rent deals. Everyday they don't sell, they make money, so to sell they want a higher premium."
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