Midwest aluminum premiums hit 11 cents

Midwest aluminum spot premiums rose to new highs this week, hitting 11 cents per pound as the contango on the London Metal Exchange continues to encourage traders to finance metal in warehouses, keeping supply tight.

"The sky’s the limit," one trader told AMM, quipping that the Midwest premium was nearly as high as the price of LME aluminum itself. "Clearly it’s trending up. We’re well over 10 (cents)."

Producers and traders echoed this sentiment, with a second trader achieving a premium of as high as 11.5 cents for some July tonnage. The dropping aluminum price on the LME this week spurred some forward interest from consumers, although most are only locking up a few loads, sources said.

On Thursday, three-month aluminum closed at $2,014 per tonne (91.4 cents per ton) after dipping below the symbolic $2,000-a-tonne mark in Wednesday trade.

Although LME inventories dipped slightly earlier this week—on Tuesday, global inventories fell to 4.93 million tonnes from 4.94 million tonnes a day earlier—traders continue to finance metal in warehouses to profit from the contango. And with wait times from Detroit warehouses estimated at nine months to a year, that metal isn’t expected to hit markets anytime soon.

On Thursday, the Sept. 19/Dec. 19 spread was in a contango of $29.75 per tonne, while the June 20/Aug. 31 spread hit $30.50 per tonne, LME data showed.

Sources agree the rising premium is more a case of artificial tightness as opposed to actual scarcity of supply, however. Artificial or not, taut supply coupled with solid demand from a variety of end markets, including a slowly improving building and construction industry, point to a further rise in premiums, sources said.