Speculations on the fate of aluminium in 2015

Predicting the market conditions for the new year is always a tricky business and it becomes even more so when it is in regard to a volatile market like aluminium which has seen such ups and downs in the previous year itself. Yet industry experts are making tentative predictions about what may happen in 2015 in the aluminium industry.

At present, the common consensus that is being heard in the industry is that the unnaturally high premiums seen in the first quarter is likely to dip in the second and third quarters as warehouse financing deals expire and there is more inflow of metal into the market.

However assuming that the premium will come down enough to make the LME price the larger part of the all-in price is still assuming too much, as something similar had been said last year as well which of course proved to be wrong.

People had assumed that when LME warehouses implemented the new rules the premiums would drop drastically. However, the premium that started out as $230-240 per tonne when LME announced the new rules, spiked to an unimaginable $500 per tonne in September 2014.

Although many people blamed the warehouses for a delay in implementation of the new rules, the premium did not fall even when the warehouses started behaving properly with controlled load-in and load out rates. The reason being, after the metals left the ‘official’ warehouses they often found home in the some unofficial ones and the stockpiling continued.

LME spreads is the only thing that has changed from last year with the cash-to-three-month spread being hugely volatile over the past 6 months, even moving into $12.50 per tonne backwardation in November. If the backwardation trend continues, it will make stockpiling useless and more metal would be released into the market.

For the LME price to become the larger part of the all-in price and the LME system becoming more efficient, it is not only necessary for the queues to reduce in the official LME warehouses but it is also important that the metals stores in other warehouses are exhausted as well.