US prompt primary aluminum premiums dropped by 0.25 cents this week to 5.1 cents/lb plus LME cash, delivered Midwest, as the LME backwardation in cash-to-threes grew to almost $30/mt based on LME officials, and as consumers and producers were actively offering material. However, as of Friday, the cash to threes spread was level.
"There's a backwardation brewing, and no one wants to buy anything, and no one wants to sell anything," said a trader. "The price is too high." Market players said consumers were in the market selling P1020 as scrap has remained readily available and demand has been subdued. A couple of consumers told Platts they were on the fence about selling P1020 and had yet to make a decision.
A billet remelter said his November demand was off 10% from October, and a sheet maker's demand was down 10-12% year over year, and down 20% from September. "It's not falling off a cliff, but it is slowing," said the remelter, noting that there is particular weakness in the building products sector.
A consumer this week was offered at 3 cents/lb, FOT, delivered to a close freight, and paid 4.75 cents, delivered Midwest. A producer sold at 5 cents, and a trader paid 5-5.35 cents. A producer offered metal to another producer, indicating there was plenty of metal in the market. He said, "The back is making everyone cautious."
Another trader said he had a hard time believing any deals could be done at 5 cents as he said no one would pay more than 3 cents. A consumer sold at 4 cents, delivered to a close freight location outside the Midwest, saying he "could not give metal away." However, a trader said he continued to sell on a fixed-priced basis at 5.5-6 cents.
Other traders said they were out of the market due to a lack of buying interest. "You can look to reduce your premium to get rid of the metal so that you're not holding it and paying the rents and financing," said a trader. "But you still nonetheless have to find someone who needs it." The next alternative would be to deliver your units to the warehouses and not tie up your cash. A producer said he was also out of the market for P1020 as "there are too many consumers selling metal."
Traders said with year-end producer selling coming up, they would not be surprised to see more deterioration in the premium; one trader said premiums could fall to 4.5-4.75 cents by December. An extruder said some have pretty hefty inventories they need to get rid of before the end of the year, "and I think we're going to see some lower numbers between now and December because you have LIFO kicking in," he said.
As for supply and demand, "the supply seems to be adequate," said the trader. "I don't see anyone really knocking down my door in a major push to sell. If I wanted to go out and buy something, I think it would be very easy. Everything seems to be in a delicate balance here, but I'm not sure that we've really seen the push on selling yet," said the trader.
Traders said the European market has been doing well and have diverted some of the Canadian units from the US to Europe. "If all that metal wasn't being diverted there, I think premiums would have eroded here quicker," said a trader, adding that early next year, when everyone is beyond their December inventory issues, "we should see the pickup here as well."
The consumers are still of the opinion that the market is going to fall out of bed, said another trader, "so they're not buying anything that they don't absolutely positively have to have." He said there is every possibility that consumers could live off existing inventory for the remainder of the year, just as there is every possibility that the primes--who now say they have nothing--find something they want to ship by the end of the year. "So the market is likely to pick up somewhat given those factors," he said. "But I don't think we're
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