Aluminium premiums stay in wide ranges as market views differ

Aluminium premiums are being offered within a huge range for spot deals in Europe, with some sellers desperate to offload material into a market from which consumers continue to hold back, ahead of anticipated falls.

Metal Bulletin’s European duty-paid aluminium premium stands at $245-265 per tonne, where it has stood since August 12.

Premiums fell in July and early August following the London Metal Exchange’s proposal of new load-out regulations for warehouses, mostly on deals between traders. As premiums fell, consumer business dried up on expectations of further falls to come.

But as producers returned from their summer holidays to lower market premiums, they realised that the large contangoes on the LME forward aluminium curve offered an alternative to selling metal at razor-thin margins, or no margin at all, and the market slowed once more.

While some in the market believe that the falling incentives on offer from warehouses that are adapting to the new rules – due for implementation in April next year – will lead to lower premiums, others feel that the large contangoes could be incentive enough to hold metal away from the market and thus premiums will need to stay near current levels for physical buyers to compete.

The result is a wide range of premiums in the market when an enquiry is made.

“People are selling below the range and others are offering higher,” a producer said. “We offered some material and others were offering $15 [per tonne] higher, but the customer said he bought more than $15 cheaper than our offer.”

Some producers are happy to wait for the return of consumers into the market before shifting metal, confident that the LME spreads will hold premiums steady till then. Though many consumers are still holding back from the market, most will need to buy soon for their fourth-quarter needs.

“The first real week of September is when we’ll see things pick up,” a second producer said.

Others are keen to move volume now as they see lower premiums to come, and are positioning themselves accordingly.

“Regardless of the spread, the feedback from the LME rules is that we will see premiums fall heavily,” a trader said. “Over the next six months, we could possibly even be back to $100 duty-paid premiums.”

Offers are likely to stay in wide ranges until greater clarity comes either from the start of negotiations with consumers for fourth-quarter and 2014 volumes, or at least until the LME’s consultation period for its new load-out rules is completed later this year.

“Nothing much will be concluded till the Metal Bulletin conference [in Geneva] or the end of the LME consultation,” the trader said.