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Asian Aluminum Premiums to Continue Rising in third quarter
Edited by : AL CIRCLE
2 min read
Asian aluminum premiums are expected to continue on their recent upward trajectory during the third quarter of the year due to supply constraints, market participants said Thursday.
London Metal Exchange prices are below production costs for many smelters, making further cutbacks likely, and large volumes of metal are moving into long-term financing deals, adding up to tight supply and further increases in premiums, market participants said.
Asian premiums have soared this year even as demand remained mostly muted.
Third-quarter Japanese contract premiums, an Asian benchmark, settled earlier in June at $200-$210 a metric ton, a sharp increase from $115-127/ton for the second quarter.
"I see a lot more upside for premiums during the third quarter," one producer who supplies Asian markets said.
Singapore-based traders said they expect fourth-quarter Japanese premiums to settle above $250/ton as tightness persists.
"It's quite a dilemma for consumers at the moment: they're hesitating because the premiums are so high, but if they don't buy they're risking even higher premiums," one trader said.
He pegged Singapore premiums at $135-140/ton compared with around $100/ton three months ago.
Asian supply is so tight that some suppliers may try to divert metal to Asia in the third quarter, a second producer said. However, large-scale diversions are unlikely because of limited supply in Europe and the U.S, where premiums are also high, participants said.
"Given the firmness of [U.S. premiums], it will be difficult to attract that metal out of the U.S," Standard Bank analyst Leon Westgate said.
Queues to take metal from some U.S. warehouse locations could also slow diversions of LME stock into Asia, traders said.
Meanwhile, three-month aluminum prices remain under pressure on the LME. Aluminum is trading around $1,975/ton, down 2.2% since the start of the year and 16.4% lower than its 2012 high of $2,361.50/ton, reached in March.
Traders and producers said prices could be far lower without support from financing deals, which can keep metal off the market for years at a time. These deals became a major feature of the market when demand fell during the 2008-2009 financial crisis. Producers struck deals with investors, traders and banks by pledging metal to raise cash.
LME canceled warrants--a proxy for metal about to leave warehouses--signal the amount of metal moving into financing deals. Canceled warrants totaled 35.51% of stock Wednesday compared with 13.33% in early January.
London Metal Exchange prices are below production costs for many smelters, making further cutbacks likely, and large volumes of metal are moving into long-term financing deals, adding up to tight supply and further increases in premiums, market participants said.
Asian premiums have soared this year even as demand remained mostly muted.
Third-quarter Japanese contract premiums, an Asian benchmark, settled earlier in June at $200-$210 a metric ton, a sharp increase from $115-127/ton for the second quarter.
"I see a lot more upside for premiums during the third quarter," one producer who supplies Asian markets said.
Singapore-based traders said they expect fourth-quarter Japanese premiums to settle above $250/ton as tightness persists.
"It's quite a dilemma for consumers at the moment: they're hesitating because the premiums are so high, but if they don't buy they're risking even higher premiums," one trader said.
He pegged Singapore premiums at $135-140/ton compared with around $100/ton three months ago.
Asian supply is so tight that some suppliers may try to divert metal to Asia in the third quarter, a second producer said. However, large-scale diversions are unlikely because of limited supply in Europe and the U.S, where premiums are also high, participants said.
"Given the firmness of [U.S. premiums], it will be difficult to attract that metal out of the U.S," Standard Bank analyst Leon Westgate said.
Queues to take metal from some U.S. warehouse locations could also slow diversions of LME stock into Asia, traders said.
Meanwhile, three-month aluminum prices remain under pressure on the LME. Aluminum is trading around $1,975/ton, down 2.2% since the start of the year and 16.4% lower than its 2012 high of $2,361.50/ton, reached in March.
Traders and producers said prices could be far lower without support from financing deals, which can keep metal off the market for years at a time. These deals became a major feature of the market when demand fell during the 2008-2009 financial crisis. Producers struck deals with investors, traders and banks by pledging metal to raise cash.
LME canceled warrants--a proxy for metal about to leave warehouses--signal the amount of metal moving into financing deals. Canceled warrants totaled 35.51% of stock Wednesday compared with 13.33% in early January.
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