NEW YORK--The U.S. Midwest aluminum premium remains within a 3.5 to 4 cents per pound range, market observers said Friday.
The premium over London Metal Exchange cash prices has been pressured lower over the last few months amid a lack of fresh demand and continued backwardation in the aluminum market. Some trade sources are reporting the premium to be as low as 2.5 cents level.
"The backwardation is still there but today we are seeing a big drop in base metals," said a New York-based trader who added that the news surrounding Red Kite Management Ltd.'s $1 billion metals-trading hedge fund could help aluminum premiums.
"It depends on Red Kite and if the aluminum complex gets battered which would lead to people letting the spreads go and premiums could rise," the trader said.
Red Kite's metals-trading hedge fund has suffered losses so far in 2007 after a strong performance in 2006. Due to the losses, Red Kite management is asking investors to give notice before withdrawing from the fund.
According to the Wall Street Journal, as of Jan. 24, the London-based firm was down about 20% for the year, according to an unofficial estimate that the fund provided to one investor. It was Red Kite's worst one-month performance in at least a year, according to an investor who has seen the firm's results.
Meanwhile, LME cash aluminum was officially quoted at $2,809 to $2,810 a metric ton Friday or about $1.2739 to $1.2743 a pound.
Inventories of aluminum stored in LME warehouses rose 4,425 metric tons to 746,850 from Thursday to Friday.
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