Increasing demand in auto and construction sector putting pressure on aluminium

The increased demand in the cars and construction sectors is putting pressure on the aluminium market which is already showing stress as supply constricts.

Since traders are paying high LME prices, close to the two-year peak amounts, as well as high premiums, they are leaning towards hoarding in the hope further increase of prices in the near future.

For the past four trading days, the costs to roll over short cast aluminium position for a short term delivery like tomorrow or day after have soared to more than $7 per contract, the highest since 2012.

The U.S. auto sales in November have hit an annualized rate of about 17.1 million units, the best recorded November figures since 2004 which has given a boost to aluminium, the recent favorite among automakers.

According to LME open interest data, short aluminum positions for December are at 1.22 million to 2.32 million tonnes, whereas long aluminium position are 1.02 million to 1.55 million.

Some traders may choose to forgo lucrative premiums as the costs of hoarding are ballooning, which means they are delivering directly to the LME warehouses. This is curbing the rising premiums considerably and users are set to agree Asian benchmark terms for the first quarter of next year.

The expected rise in term premiums for the first quarter is only $10-$20 according to traders and the negotiations are expected to conclude around Friday.