Reduced offers support aluminium premiums in Brazil

Aluminium premiums negotiated in Brazil are following a different trend from other parts of the world as local sector fears a material shortage after production curtail announcements and increasing demand, Metal Bulletin understands.

Premiums for aluminium ingot in Brazil are trading at $450-500 per tonne on a delivered basis, and are expected to remain at these levels at least until the end of the year, according to local market sources.

But very prompt deliveries have commanded even higher premiums, one executive said.

"I have seen people paying up to up to $680 per tonne as the company needed the material right away," he told MB.

Brazilian aluminum demand for 2013 is estimated at 1.4 million tonnes, between 100,000 and 200,000 tonnes above output, which is forecast at 1.2-1.3 million tonnes.

Some sources pointed to a recent shipment from South Africa as an example of how imports could increase sharply as a result of this shortfall, though they said that till now this has not happened.

Premiums in Brazil result from domestic aluminium producers' method of calculating how much would the same material cost if it were imported.

Brazilian premiums are set on the value of international premiums (approximately $220 per tonne on a delivered US midwest basis), plus a 6% import duty (with the London Metal Exchange cash price trading at $1,787, this equates to $107 per tonne), plus around $60 per tonne in port fees and other import-related expenses.

This calculation suggests that the cost of importing primary aluminium into a Brazilian port would be around $387 per tonne.

But few local buyers are ready to depend on imports, because they regard buying aluminium in this manner as a long and bureaucratic process.

Brazil produced 666,000 tonnes of aluminium in the first half of the year, down 8.4% year-on-year. Domestic consumption, by contrast, is expected to end the year 3.7% up.

Alcoa, for example, said in August it was shutting 132,000 tpy of aluminium smelting capacity in Brazil to maintain global competitiveness and as a result of high power costs in Brazil.

For comparison, two years ago, in 2011, premiums in Brazil were considered high as they reached the mark of $300 per tonne.