Floating premiums obstruct value-added aluminum talks

Manufacturers of value-added aluminum products haven’t been making much headway in terms of securing long-term supply contracts for next year, a European producer of value-added products told AMM sister publication Metal Bulletin

"We’ve not started closing transactions for next year yet," the producer said, adding that he expects that to change over the coming weeks, especially in the slab rolling, where buyers are used to having floating premiums on their contracts with suppliers.

But producers are now pushing floating premiums in contract discussions with customers in other value-added product sectors, such as billets, wire rod and foundry alloys, in order to incorporate record-high aluminum premiums that are expected to rise even higher next year.

In many cases, resistance to these floating premiums has stalled contract talks.

"We cannot give fixed premiums for the whole year to anyone, even our biggest and best customers," the producer said. "It’s our policy now."

The producer added that resistance from consumers was greatest among companies in the wire rod sector, such as manufacturers of electrical transmission lines.

"There is more resistance in the rod market. Customers normally have full-year contracts with one price, end of story," he said. "It’s more complicated now. We’ll see how it goes."

The market, which was a buyer’s market last year, is now tilted toward sellers. Should less business be booked on long-term contracts for 2013 than for 2012, it will translate into higher spot demand next year, when the market consensus is for even higher premiums.

"It’s a seller’s year. We have a little leverage this time," the producer said.