Aluminium premiums in Europe slide by half since peak

Surcharges for physical aluminium in Europe have spiralled down by nearly half, good news for industrial consumers such as beer can makers which had bitterly complained about warehouse backlogs of up to two years for delivery of the metal.

The unraveling of financing deals at warehouses, together with heavy Chinese exports, has unleashed a glut of aluminium, while demand remains poor.

Premiums paid over the LME cash price were mostly quoted in a range of $250-$290 a tonne for duty-paid material in Rotterdam.

That is a fall from premiums of $370-$390 in early March and about half the levels at a peak of $500 in November 2014.

"It's going down very fast and I don't know where it's going to stop," said one trader, who added that there were some deals with premiums as low as $230.

"If you have a lot of stocks and you want to get rid of them now you have to go down."

The bulk of the estimated 10-12 million tonnes of global aluminium inventories have been locked up in financing deals for the past several years, but a flatter forward curve is making them much less lucrative.

Under the financing deals, investors previously have been able to sell aluminium forward at a healthy profit and store it cheaply until the deals mature, keeping the metal off the market.

"The contango doesn't support the financing deals and so there's no new deals going on," a second trader said.

A contango is when a forward price is higher than a nearby one.

The spread between the cash LME aluminium contract and the 15-month contract has sharply contracted over the past 12 months to $31.75 a tonne from $109.75.

The other driver of lower aluminium premiums have been high levels of Chinese exports.

Preliminary Chinese trade data show exports of unwrought aluminium and aluminium products were 360,000 tonnes in March, down 14 percent from the previous month, but still at relatively strong levels.

If exports continue to decline in April, that could help keep premiums from falling further, said a source at a producer.

"It usually takes some time before the market rebalances. Now we have seen the exports from China coming down a bit, but it takes some time before you will see the market become tighter," he said.

To know more about the changing aluminium premium trends read our Blog.