US prompt primary aluminum premiums fell to 4.75 cents/lb plus LME cash, delivered Midwest, this week--a level not seen since November 2005--amid consumer and producer sales ahead of year end. Premiums a month ago were 5.75 cents.
Market players said premiums were bound to fall as inventories are adjusted as year end approaches, demand in the extrusion market has fallen off and consumers are holding large P1020 inventories that they are trying to work off. "I just think this feels more like destocking," said a producer. "I do not feel so much like business is gone forever."
The producer said he saw a lot of positive things for demand for next year. "Many people are optimistic for their demand for 2007. No one is talking about a recession. This is just one of those year-end things," he said.
Two positive factors for the P1020 market are the return of the contango and the lack of imports as European premiums remain strong. The cash to threes contango was $22 on Thursday. Market players said if it weren't for Europe, premiums would be at 3 cents.
Most traders have been largely absent from the P1020 market, leaving much of the business done between consumers and producers. A producer remarked that consumers are not too worried about the premiums since the outright price remains strong. "They are just taking their cash," he said. "If they cannot sell their finished product, they sell the ingot and take the cash. They will just rebuy it in Q1."
One trader was offering at above 5 cents, "if someone calls," but he said he had no spot sales. Another trader was seeking out buyers to maintain a square book but said some of the pressure has been taken off as the contango returned. A third trader said a producer called him looking to unload several thousand tones, but he was not interested in buying any units until January.The trader heard of consumer sales at 3-3.5 cents, delivered.
A consumer paid 3.25 cents/lb, FOT Owensboro, net 30-day payment, while a producer said the best bids he received were 4.65 cents, delivered Midwest, saying that no one has any need for material. "There are some significant offerings out there right now," said the consumer, adding that market players are looking to get out of their long positions. A mill official said he was seeing a slowdown in the distribution sector, driven by weaker automotive demand.
A diversified extruder said he pushed off his P1020 requirements into January and February as he was seeing a 10-15% slowdown across the board from last year. The building and construction sector was off the most, he said, noting he's also seeing a slowdown in truck/trailer. However, the consumer durable and electrical sectors are still strong.
Regionally, the West Coast is holding up well, while the Northeast is slowing. The Southeast has seen the most slowdown, due to a lack of hurricanes and delayed renovations, said the extruder. Lead times are "quite close" at around a week, he said, noting that "there's no backlog. All I've heard is consumers pushing back on supply," he said. "I won't need anything [P1020] until February. Things have really slowed down." However, he was not interested in selling any of his excess inventory. "I wouldn't even get 3 cents for it," he said.
The extruder said traders may be holding off buying until premiums fall further. "Traders smell blood, and producers have to get rid of metal," he said. The extruder called the rest of the year "a write off" and said, "I hope everyone will be able to factor in the slowdown, and there will be no more cancellations of orders."
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