San Diego, California -- The Platts US prompt primary aluminum premium rose to a two-month high 3.75 cents/lb plus LME cash, delivered Midwest, last week, as the drop in London Metal Exchange prices and the return of the contango brought out some buying interest.
However, reports on demand from nearly all sectors was weak. "It's pretty miserable," said an extruder, although he paid last week for a substantial volume from a trader at 4 cents when the LME fell. He said premiums are at 3.25-4 cents, depending on where the LME was.
A consumer saw the spot market at 3-3.5 cents, saying he continued to have inventory he needed to get rid of. "There's not much out there from anyone who wants to do anything," he said. A producer agreed premiums were below 3.5 cents, selling at 3.25 cents. A trader paid 3-3.5 cents, delivered Midwest, and said premiums should continue to inch up in the second quarter. "But I think the main variable is on the demand side," said the trader. "If there's no demand, then nobody is going to reach for it, and the producers are still lugging around metal."
Another trader sold at 3 cents FOT Owensboro, equating to 3.75 cents, delivered. He said the market is "not robust by any means, but the return of the contango is supportive."
On the higher side, a trader said he would not lower his spot offer level of 4.25 cents, despite the lack of business. "Just because there's no business, doesn't mean you lower the offer," he said. The trader attributed the higher premium to replacement costs. He added: "4 cents and above is not even enough to bring in imports, not that there's a whole lot needed right now. But it doesn't matter. It's not like there's a whole lot of metal out there right now."
Unlike many others, the trader saw demand rising because scrap was drying up. "You talk to any extruder, they can't find press scrap, they can't find painted siding, they can't find scrap. They're even calling us, and we don't even deal with scrap." He said his sense was that scrap supply was drying up with industrial production off over the past six months.
Another trader had also heard that some extruders were searching for prime after failing to find enough press scrap. But when he made inquiries to see if there was any buying interest, he received bids of 2 cents, delivered Midwest. "There's not a whole hell of a lot of appetite out there," said the trader. When he talked to a consumer to ask about orders, the consumer responded "miserable" before he could finish, he said.
For Q2, a trader sold at 5 cents, saying "the market is not as soft anymore," and there's "not a lot of inventory around."
On the billet side, an extruder said there has been no demand but also not a lot of physical billet supply at the ports. "Everybody has capacity, but they're not giving it away. Some are just cutting shifts and doing maintenance," he said. "Extrusion operations are also cut way back." He said extrusion demand this year versus last year is down 20-25%.
Two extruders attending the Aluminum Extruders Council meeting in San Diego last week said their orders were down 12-15% from elevated 2006 levels. Said one, "We had hoped this year would be better, but it is off. We are suffering a lot of attrition due to China." Another extruder said demand is particularly slow in the residential construction and transportation sectors. "March is supposed to be the busiest season, but this is the first time the extruders are having a bad March in years," he said. A billet remelter said his April levels are expected to improve from March.
According to Harbor Intelligence, the large hedge fund that has been active in the market has at least partially exited its position "after loosing money in the options market and probably in its overall strategy." This is evidenced by the return on th
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