US Midwest aluminum premiums inch up

Midwest aluminum premiums inched up over the past week, with market participants claiming that rising demand and limited domestic supply will continue to support current premium levels in the near term.

AMM's spot P1020 premium edged up to 18.25 to 18.75 cents per pound on April 18, from 18.25 to 18.5 cents a week earlier.

Sentiment was leaning toward future increases in the premium largely due to increased purchasing activities, limited North American capacity and improved weather conditions across much of country, sources told AMM.

"The (Midwest) premium is more a factor of North America not investing in its smelter base," one producer source said. "There has not been a new smelter in North America for a very long time. Bottom line: It means material has to come from abroad."

The influx of imported material had led to an "arbitrage situation" between companies competing to receive a steady supply of material, the producer source noted.

"Between smelter curtailment and the additional demand, especially in the automotive sector, we are seeing a deficit of North American supply," he said. "The situation will continue to impact our balance of trade, keeping premiums high for quite some time."

Sellers looking to take advantage of elevated premiums-in anticipation of a near-term fall-have largely retreated for the time being, sources said.

"Aggressive sellers have gone into hibernation, so premiums might have some upside, albeit (they) won't run away as in late December to January," one aluminum trader said, adding that London Metal Exchange financing deals had become "more risky" because of higher premiums. "Forwards are not as attractive as they once were just because the premiums are already so high."