27 AUGUST 2012Commodityonline.com
High Aluminum premiums mean less output operating at a loss': R.J. O'Brien
Edited by : AL CIRCLE
1 min read
Record aluminum premiums have two major implications for the aluminum market, said R.J. O'Brien & Associates in a commodities research note.
"Since the premiums are paid to the smelters, the revenues arising provide some offset to the fall in LME (London Metal Exchange) prices. Thus less production is operating at a loss than would otherwise be the case," the firm added.
Further, smelters are bound more closely to their key counterparties than in the past since such a high percentage of revenue is now generated by premiums. Premiums in all major regions have been rising, with the U.S. Midwest premium hitting a record of 10.75 to 11.25 cents a pound, up from 10.50 to 11 cents the prior week, R.J. O'Brien noted.
These premiums exist in part because access to metal has been limited by carry trades, or stock-financing deals that are funded by forward price spreads. The returns from these have been enriched by the rising premiums the carry trades have helped to support.
Also, R.J. O'Brien cited that, de facto limits on the rate at which LME metal stocks can be brought back into the market.
"Since the premiums are paid to the smelters, the revenues arising provide some offset to the fall in LME (London Metal Exchange) prices. Thus less production is operating at a loss than would otherwise be the case," the firm added.
Further, smelters are bound more closely to their key counterparties than in the past since such a high percentage of revenue is now generated by premiums. Premiums in all major regions have been rising, with the U.S. Midwest premium hitting a record of 10.75 to 11.25 cents a pound, up from 10.50 to 11 cents the prior week, R.J. O'Brien noted.
These premiums exist in part because access to metal has been limited by carry trades, or stock-financing deals that are funded by forward price spreads. The returns from these have been enriched by the rising premiums the carry trades have helped to support.
Also, R.J. O'Brien cited that, de facto limits on the rate at which LME metal stocks can be brought back into the market.
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