Midwest aluminium premiums slip

Midwest aluminium premiums dropped again this week as market sources fretted about increased import volumes and the potentially chilling impact of a cold winter on demand.

Metal Bulletin sister title AMM's spot P1020 premium slipped to 18.75 to 19 cents per lb on March 5 from 19 to 19.5 cents previously.

"The premium ran up fast, and what goes up must come down," one trader said, estimating that premiums could fall another penny before March is over.

The trend results in part from high premiums in the USA attracting metal that might ordinarily have gone to Europe or Asia, market sources said. Material was redirected to the US market after Midwest premiums spiked to more than 20 cents per lb earlier this year, with some of that metal arriving in March and April, they said.

A combination of increased imports and a looser scrap market could drag down Midwest premiums, analysts at New York-based Morgan Stanley Research said in a note March 6.

"We think improving scrap availability and pricing pressure from imports pose downside risk to US premiums," they said.

Scrap flows historically have improved with warmer spring weather.

While some market sources reasoned that the severe winter should see pent-up demand in the spring and summer months, others cautioned that the deep freeze could put a damper on 2014 activity.

"Winter is hurting downstream demand on a lot of fronts," a second trader said. "You are probably not going to go out shopping when you are continually being hit with snowstorms."

Construction also has taken a hit because of the cold, the trader said. "I'm hoping things pop in April-May, otherwise it's going to be a very long summer."

But some downstream consumers brushed aside such concerns, pointing to brisk business in sectors as diverse as the marine, recreation vehicle (RV), truck trailer and automotive markets.

Unlike the RV market, construction is far from its last peak but continues to tick up slowly, one consumer source said. "Construction has to join the party at some point. We're headed in the right direction, and you can't stay down forever because at some point, barring a global catastrophe, you are going to have a lot of pent-up demand."

Several market participants expressed muted concerns about geopolitical instability following Russia's incursion into Ukraine's Crimean peninsula, although most thought the events would not have any immediate impact on North American demand or premiums.