US prompt primary aluminum premiums last week hit a more than three-year low of 3.35 cents amid continued weakness at year-end. Premiums had not hit that level since September 2003.
As another bearish signal in the market, a large tonnage of material was put on warrant in Detroit, indicating a lack of consumer and trader buying interest in the market. Market players suspected it was a combination of producers and traders who put the material on warrant. "This happens when you have depressed premium and a backwardation," said a trader. "I think there's more coming." In addition, a consumer was heard to be offering a lot of material just prior to year-end.
Although some buyers were expected to hit the market again in January to rebuild inventories, some said they would hold off on their spot sales. Several market players said that as consumers had deferred shipments from November/December into January/February, several large annual contracts are not expected to begin until March.
But for last week, market players said they expected little change in premiums amid a lack of activity. While there have been limited trades recently, a couple of producers and traders had concluded deals around the 3-3.5 cents level, but a producer said if he came in to buy a large tonnage of material, he would have to pay more than 3.35 cents.
Also, a trader said he was bidding at the lower levels and missing the deals. The trader said he sold to a consumer at 4.5 cents for December. A producer said he heard a trader was seeking metal at Baltimore, but had no takers, while a trader heard metal at Baltimore was offered at 3 cents/lb FOT.
"There is absolutely zero activity," observed a trader of trading this week. "This week it's hard to find people who are around." Said an extruder, "All but one or two [of my customers] out of 30 have shut down [this week]." The extruder said his December volumes were off 15% from year-ago levels, but his January levels look better than expected.
However, a trader said there's "inventory all over the place to be bought," and he suspected there would "not be many short for January either." A mill official said producers are calling him every day asking what his needs are for the first quarter. "The only thing that may change that a little bit is if pre-consumer scrap starts to dry up some, then we may have to start using some primary for correction," he said. "But normally we're trying to use segregated scrap for stuff like that."
He said that right now, scrap is still widely available. "But I think as these plants continue to shut down and take extended outages, we may see some slowness there," he said. He believed there was enough prime now to meet current and first-quarter demand. "I think the first half of 2007 is going to be a slower market. We in the United States are definitely going to have to change some things," he said, referring to the automotive and housing sectors. He said he believed no one would have to pay over 4 cents for delivery in the next 30 days.
But a trader said the market was under 1.75 cents FOT. "People need to sell," he said, adding that "if people are shipping to the LME, premiums are not 3.5 cents anymore."
Most consumers said suppliers had sold all of their metal for the year. "We saw it come and go, so I don't see much room for [premiums] to move down," said a trader. "Premiums should move their way back up from here." He said there was little South American and Russian material coming in to the US. "Everyone will be eating down their inventories," he said.
Added another trader: "I don't think the growth is going to be fantastic. But I do think there's going to be some tightness in metal because import metal hasn't been coming in here. It's been going to Europe."
Further out, a consumer did a financial hedge for the
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