Rusal seeking some fixed-term aluminium premiums for 2014

Russia's United Company Rusal , the world's biggest producer of aluminium, wants to fix the price for some of its aluminium supply contracts for next year, the company's marketing chief executive said on Thursday.

Rusal last year broke with tradition to switch term supply deals for 2013 to a floating premium, the amount paid on top of the London Metal Exchange (LME) price for physical delivery of metal.

"Last year, we felt that floating gave a fair outcome for producers and consumers. This year, we would look to fix some of our requirements and not leave it open. We will fix what we can," Steve Hodgson said in an interview, giving no figures.

"There are segments of the market that prefer that anyway. There will be a basket of different outcomes. More fixed would be our preference."

The world's leading aluminium producers - Rusal, Alcoa and Rio Tinto - and consumers are in Geneva this week for annual supply negotiations.

Last year, with global spot premiums at double the levels agreed in many fixed-term 2012 contracts, producers wanted more exposure to the spot price.

Backlogs in deliveries from the LME global warehousing network have created long queues and inflated spot premiums, sparking complaints from consumers.

Those complaints have led to a string of U.S. lawsuits and an LME proposal to overhaul its delivery system from next April. As the new rules would force warehouses to release more stocks, LME prices and premiums are already starting to decline.

European spot aluminium premiums are down some 20 percent from a June record high near $300 a tonne, giving consumers more bargaining power in negotiating term contracts for next year.

Premiums are paid over the LME cash price to cover physical delivery costs but also reflect changes in supply-demand dynamics, such as increased metal availability as a result of reduced backlogs at LME warehouses.

Rusal's move last year bucked the trend; producers and consumers have traditionally agreed fixed terms for annual supply contracts.

Hodgson said 2014 premiums for Europe were still being discussed, and he gave no figures for the region. For Japan, he said premiums for the next quarter were being finalised, and expects to see them at around $245-249 per tonne.

That gives producers hope that Japan's relatively high number will help influence the fixed-term supply deals in Europe.

Hodgson said the LME's proposed rules would have no direct impact on Rusal as a warehouse user.

"But we aren't immune to softer premiums as a consequence of the policy changes and the possibility of metal holders liquidating their positions," he said.

"We are indirectly impacted. It increases the uncertainty that exists in the market. The proposed changes have done nothing to improve confidence or transparency to the way the exchange operates."

Earlier this month, Rusal and U.S.-based Alcoa urged the LME to boost transparency by releasing more detailed data on long and short positions as well as about who is holding inventories.

Hodgson confirmed Rusal was working with the Russian government on a project to stockpile up to 1 million tonnes of aluminium for strategic reserves.

"The logic is that the outlook for aluminium is very good. We think that the oversupply will start to work its way through and the LME price is only likely to improve," he said.

"We think we are close to the bottom. Our view is that if Russia wishes to create a strategic reserve then that could pay off over two to four years."

Benchmark three-month aluminium stood at $1,831 per tonne on Thursday, down around a third from a peak of $2,803 a tonne in May 2011.

The surplus on the global aluminium market is forecast to widen from 825,385 tonnes this year to 1 million tonnes in 2014, according to a Reuters poll of analysts.