Century questions ‘tight-lipped’ LME over aluminium premiums

US regional aluminium premiums fell during most of the third quarter but have recently firmed and even increased slightly, Century Aluminum Co executives said.

But the Chicago-based aluminium producer said uncertainty remained in premiums and warehouse stock forecasts given uncertainties around London Metal Exchange warehouse policies.

U.S. Midwest premiums fell from a high of 11.8 cents per pound before the LME proposed changes to its warehousing policies (amm.com, July 1) to a low of roughly 9.8 cents per pound, company president and chief executive officer Michael A. Bless said during a Nov. 4 conference call with analysts.

Midwest premiums have recently increased to 10 cents per pound, while European Union duty-paid premiums have been stable in recent months at about $245 per ton, Bless said. “Volatility seems to have come out of (premiums) at least for right now,” he said.

“But it’s hard to tell whether people are sort of beginning to reprice premiums under what they expect the (new LME) regime is going to be or just a lack of direction causing people to freeze.”

The LME’s board has made a decision on its warehousing rules but has yet to make that decision public (amm.com, Oct. 25).

Century has no insight into what the board may have decided, Bless said. “The LME is being reasonably tight-lipped. ... There has been lots of speculation about why, if they’ve made a decision, they haven’t just gotten on with it and announced it,” he said. “We don’t know anything more than anybody else at this point.”

The future of on- and off-exchange inventories, which are still high, will depend heavily on the specifics of the plan, Bless said. In the meantime, wide contangoes continue to encourage financing deals, he said.

Also on the pricing front, the average LME cash metal price for the third quarter was $1,781 per tonne, down 2.9% from $1,835 per tonne in the second quarter and representing the lowest average price since the second quarter of 2009, Bless said.

Lower LME prices reduced third-quarter revenue by about $10 million, chief financial officer Shelly Harrison said. Century should be cash-flow breakeven at a realized aluminium price—LME plus Midwest premium—of about $1,775 per tonne, she said. But that’s assuming Century’s Hawesville, Ky., and Sebree, Ky., smelters are receiving market-based power rates and that power tags continue to follow current trends, Harrison added.

Century has issued a Worker Adjustment and Retraining Notification (WARN) Act for its Sebree smelter because its power contract expires Jan. 31 (amm.com, Nov. 1), but Bless said the WARN reflected standard procedure.

The company expects the Sebree contract to be approved as soon as sometime in January, especially given that Century has already negotiated a market-based power arrangement for the Hawesville smelter, Bless said. “The (Sebree) contract is virtually identical and, frankly, it’s less complex,” he said.

This report was first published by American Metal Market