Physical prices of European Aluminium will stay high this year as financing deals squeeze the aluminium availability on the spot market, Rusal Deputy Chief Executive Oleg Mukhamedshin said on Thursday.
In an interview, Mukhamedshin told Reuters that aluminium premium CIF Europe which reflects regional demand and supplywere around $350-$370 per ton. Premiums are paid over the LME cash price."You have quite a deficit of metal in the spot market, but you also have huge pressure from financial players..., so that's why you have this discrepancy," he said.
Premiums in Europe as well as United States had hit the record highs, highlighting the LME’s inability to compensate a market where producers are locking aluminium as an investment because of low interest rates.
According to Metal Bulletin, on March 5, 100 tonnes of aluminium(duty-paid) were sold at a premium of $370 per tonne.
According to Mukhamedshin , aluminium stocks in LME-listed warehouses are at a very high level above 5 million tons, but most of it is locked in financing deals resulting in a deficit. Another 4.5 million tonnes is lying beyond exchange.
"We don't see any reason why the premiums should go down, because this metal is still trapped in financial deals, interest rates are quite low, the contango is positive and investors continue to make money," he said.
Within these financial deals, investors borrow money at low interest rate to buy physical metal and strike a deal with the warehouse to store it at a cheap rate and sell it later making a high profit taking advantage of the contango in the market.
Mukhamedshin said production cuts, the completion of new production projects with no new projects in the pipeline and rising demand would result in a global deficit, excluding China, of about 1.3 million tonnes this year and wider next year.
The benchmark for three-month contract for LME is hovering around its lowest since 2009 at $1,700 per ton.
A poll by Reuters in January predicted a surplus in the global aluminium market including China, shrinking to 568,400 tonnes in 2014 and 500,000 tonnes in 2015.
