U.S. aluminum premiums soar as fabricators scramble for metal

U.S. aluminum surcharges have jumped to record levels this month as fabricators scramble for metal amid cutbacks at domestic smelters and storage backlogs that traders say have tightened supplies.

Premiums that fabricators and merchants pay on top of benchmark London Metal Exchange prices for delivery in the Midwest AL-PREM have risen to 21-22.5 cents per lb from 20-21 cents previously, having more than doubled this year.

Increasing premiums will likely spur debate over the availability of domestic metal despite relatively subdued demand and historically high visible inventories, analysts said on Tuesday.

"Traders are starting to worry" about availability as competition for ingots intensifies with surcharges rising in Japan and Europe, said a trading source.

The U.S. premium equates to $460-495 per tonne, compared with $460-480 in Europe and $420 in Japan.

The steady rise in premiums this year has meant merchants and producers like Alcoa and Norsk Hydro are shipping more metal into the United States from relatively new operations in the Middle East, where power costs less.

Imports reached a five-year in the first nine months, boosted by big inflows from Russia and the Middle East amid cutbacks at domestic smelters.

Some 2.3 million tonnes of aluminum landed in the period ending Sept. 30, up 2 percent from a year ago and the highest since 2009, International Trade Commission data released late last week shows. In September, 243,162 tonnes arrived, the most for the month since 2008, according to the data.

Imports from Russia, where UC Rusal, the world's No. 1 producer operates, almost doubled to 285,629 tonnes, a five-year high. Canada, where Rio Tinto Alcan is headquartered, remains the largest supplier with 63 percent of the total, but imports are down 7 percent so far this year.

Imports from the Middle East topped 320,000 tonnes, up 11 percent from a year ago.

The rise in premiums and imports comes as the LME struggles to solve a prolonged crisis over its storage policy, which end-users say has led to inflated physical prices and distorted supplies.

One reason is that U.S. production has fallen, likely reaching only 1.7 million tonnes this year, down one-third from 2008, Reuters data show. Low prices and high costs have forced smelters to shutter loss-making capacity.