China Aluminium Network
Europe aluminium premiums to rise as smelters shut shop
Edited by : AL CIRCLE
2 min read
Premiums for physical aluminium in Europe are set to rise further over the next few months as the impact of recent smelter shutdowns is felt in the market, raising costs for automakers and packaging companies.
The closures will add to increasing pressure on premiums from financing deals, in which traders buy physical metal and simultaneously sell it forward at a profit, while striking a warehouse deal to store it cheaply in the interim.
The deals, which have tied up most of the record 5 million tonnes of London Metal Exchange stocks, have recently become more profitable as the difference between nearby and forward prices has widened.
"I think premiums are up because of the spreads and because of the cutbacks that have been announced in the UK, Spain and Italy. Over the next few months I see them gaining a bit more ground," said a UK-based physical metals trader.
"People who have stock can roll their positions forward at a profit. In lots of circumstances they also make money by holding material because of rent deals. Everyday they don't sell, they make money, so to sell they want a higher premium."
Premiums, the price paid over and above the LME cash price to secure delivery of physical metal, for western duty-paid aluminium on the spot market in Rotterdam are currently at around $165-$190 a tonne, up from $145-180 late last year.
Western duty-unpaid premiums are at around $115-$125 a tonne from $110-$115 late last year.
Top U.S. aluminium producer Alcoa said earlier this month it would slash output at two Spanish smelters and shut its Portovesme smelter in Italy, putting about 1,500 people out of work.
Norwegian producer Norsk Hydro has meanwhile said it plans to idle a third of its output at a plant in Australia. The moves have helped benchmark LME aluminium prices gain some 10 percent this year.
"If the economic situation in Europe doesn't worsen, then that will support premiums because we have less supply at present," said another physical aluminium trader based in Norway.
European metals demand was hit hard last year by the euro zone debt crisis, although fears have subsided somewhat this year.
The closures will add to increasing pressure on premiums from financing deals, in which traders buy physical metal and simultaneously sell it forward at a profit, while striking a warehouse deal to store it cheaply in the interim.
The deals, which have tied up most of the record 5 million tonnes of London Metal Exchange stocks, have recently become more profitable as the difference between nearby and forward prices has widened.
"I think premiums are up because of the spreads and because of the cutbacks that have been announced in the UK, Spain and Italy. Over the next few months I see them gaining a bit more ground," said a UK-based physical metals trader.
"People who have stock can roll their positions forward at a profit. In lots of circumstances they also make money by holding material because of rent deals. Everyday they don't sell, they make money, so to sell they want a higher premium."
Premiums, the price paid over and above the LME cash price to secure delivery of physical metal, for western duty-paid aluminium on the spot market in Rotterdam are currently at around $165-$190 a tonne, up from $145-180 late last year.
Western duty-unpaid premiums are at around $115-$125 a tonne from $110-$115 late last year.
Top U.S. aluminium producer Alcoa said earlier this month it would slash output at two Spanish smelters and shut its Portovesme smelter in Italy, putting about 1,500 people out of work.
Norwegian producer Norsk Hydro has meanwhile said it plans to idle a third of its output at a plant in Australia. The moves have helped benchmark LME aluminium prices gain some 10 percent this year.
"If the economic situation in Europe doesn't worsen, then that will support premiums because we have less supply at present," said another physical aluminium trader based in Norway.
European metals demand was hit hard last year by the euro zone debt crisis, although fears have subsided somewhat this year.
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