Rising aluminum premiums in U.S. worry end-users

The constant rise in U.S. aluminum premiums to a record level is fuelling the worry over falling supply and rising costs of a major raw material for beverage can makers as well as the automakers, despite the oversupply of stocks in the market. Premium for aluminum paid in U.S., on top of the LME for physical delivery of the metal, soared 45 % during the last week and reached the level of 17.5 cents per lb.

The jump has baffled General Motors, one of the major end-users for aluminum.

"I’ve not heard a convincing reason for the premium," Saber Haidous, global commodity manager for GM, said at the Platts aluminum symposium on Tuesday.

His comment has affected activities in the market and worried the consumers, who have complained that high physical prices are costing the industry billions of dollars.

The premiums are "artificially high," Jim Makki, vice president for Novelis’ North American operations, said during the conference. "We're very concerned about the pick-up in the Midwest premium." Lately, Novelis, World’s largest recycler and flat rolled producer has criticized LME because of the crisis that has been generated regarding its warehouse rules blaming it for supply glut and rising premiums.

LME has announced plans to increase the rate of deliveries from warehouses with long wait times and big stockpiles, which is expected to put pressure on premiums.

Traders consider this rise in premiums to be a result of steady decline in spot supplies and small delays in deliveries caused by the cold spell in the U.S. The total amount of the inventory that lies outside the LME ranges from 4 MT to 15 MT. At present, premiums are strictly high and traders are expecting a flow of the metal from Russia, the Middle East, or even Europe. Traders will only export metal to the United States if premiums remain high for weeks or months. Many are expecting the European and Japanese premiums to rise high following the U.S market.