Midwest spot aluminum premiums rise

Midwest aluminum premiums rose slightly over the past week amid concerns about metal supplies as material continues to be tied up in financing deals at the warehouses.

AMM's Midwest aluminum premium narrowed to 11.5 to 12 cents per pound from 11 to 12 cents previously. There were some reports of spot buys as high as 12.5 cents and as low as 11 cents, although most sources agreed that the bulk of business is taking place within the new range.

One market observer reported a deal in the Owensboro, Ky., area for approximately 1 million pounds at 11 cents. But a consumer in the same region said that such regional discounts were disappearing as supply concerns mount, in part because of worries about the delayed sale of bankrupt producer Ormet Corp.

"It just seems like the market is getting a little tired," the market observer said. "Some smaller quantities have been done at 12 (cents).

The warehouse deals have been getting weaker by maybe a couple of dollars a ton.” Meanwhile, traders can't get metal at premiums much less than 11.5 cents or sell it at premiums much above that level, the market observer said.

One producer source said that his firm had recently concluded a deal of more than 5,000 tonnes to a trader at a premium of 11.75 cents and predicted that premiums could soon be trading in a tighter range of approximately 11.75 to 12 cents.

Support for higher premiums comes in part from long queues at London Metal Exchange-listed warehouses, particularly in Detroit, he said. Traders with sales books but no smelter assets need to source material somewhere and may find that it's faster to order from a producer than to get metal out of Detroit, he said. But the producer acknowledged that while there might be upward pressure on premiums, it wasn't due to higher end-user demand. "The market is pretty quiet," he said. "It's a bit worse than what it usually is this time of year."

Whatever might be happening in the physical market, warehouse financing deals are still profitable with LME spreads in contango, one trader noted.

A second trader agreed that premiums were "holding" at 11.5 cents despite a slow market. But he scoffed at reports of premiums above 12 cents: "If the premium went to 11.75 cents, maybe even 12 cents, I would be impressed. But to say it is 12.5 cents now? That's hogwash."

Still, a third trader said that he had recently conducted two 500,000-pound spot deals, one at 12 cents and another at 12.5 cents.