Singapore Aluminum Premiums Stabilize due to slow Demand

Singapore aluminum premiums are holding steady at high levels amid thin trading as consumers limit their purchasing activity due to slow seasonal demand for end products.

Premiums to London Metal Exchange three-month aluminum prices are stable around $170 a metric ton, level for the last two weeks, but up from $135-$140/ton in mid-June and sharply higher than $90-$100/ton four months ago, traders in Singapore said.

Premiums have stabilized following sharp increases since the start of the year as manufacturing activity declines during the seasonally slower July-August period, traders said.

"A couple of weeks ago, there was a bit of panic buying from Japan, but the consumers there are now covered and the buying seems to have abated," a Singapore-based physical aluminum trader said.

The recent arrival of more aluminum into Singapore, including Iranian metal, has also helped ease supply tightness in the market, the trader said.

A physical trader in Tokyo confirmed that the market has cooled slightly in the last few weeks, citing sluggish end-use markets as the main reason for the slower trading conditions.

"The market's very slow at the moment because demand for [aluminum end] products gets weaker in the summer months," he said.

However, premiums are unlikely to pull back sharply over the next few weeks and could rise sharply again once demand picks up in September and supply continues to tighten, traders said.

Supply has tightened substantially since the start of the year due to the movement of metal into long-term financing deals, which can keep metal off the market for years at a time.

These deals became a major feature of the market when demand fell during the 2008-2009 financial crisis. Producers struck deals with investors, traders and banks by pledging metal to raise cash.

With storage costs low due to low interest rates and forward LME prices trading at a premium to prompt contracts, the deals remain very popular.

A sustained high level of canceled warrants in LME warehouses indicates the large volumes of metal moving between LME terminals as aluminum owners seek out the best rent deals.

Canceled warrants--a proxy for metal about to leave warehouses--stand at 36.94% of stock compared with 13.33% at the start of the year.

LME three-month aluminum is trading around $1,915/ton, up 0.3% from its previous settlement but 5.2% lower since the start of the year.