- US premiums jump on a combination of logistics problems, passing of the Section 232 report
- European premiums track US numbers higher, shrug off concerns of a tightening contango on the LME
- Japanese premiums tick higher on strengthening US market; rest of Asia steady
- Weak spot demand keeps Brazilian premiums flat
US Midwest premium climbs to May 2015 high
The aluminium premium in the Midwest of the United States has hit its highest level since May 2015
, rising to 10.5-11.5 cents per lb on Tuesday, up from 10.25-10.75 cents per lb a week earlier.
Some buyers appear to have returned to the spot market, but concerns about logistics, along with the news that the Section 232 report on aluminium was delivered to US President Donald Trump, have been the key drivers for the increase in the premium.
Sellers have expressed their frustration with spot rates for road haulage, with traders telling American Metal Market that they were finding it hard to secure either trucks or rail transportation for spot loads.
“There’s no [consistency of] rates out there; truckers can charge what they want,” one supplier said.
The difficulties created by the winter weather are a factor in the logistics difficulties, particularly in the more northerly areas, where Rio Tinto is said to have problems getting contracted volumes delivered to its customers.
For Rio Tinto, the transportation issues are compounding problems created by the continuing lockout at the Aluminerie de Bécancour smelter
in the Canadian province of Quebec, driving more buyers to the spot market in an attempt to cover their requirements.
Additionally, buyers are saying that scrap supply has tightened to some extent, driving some customers back to buying primary aluminium on the spot market. But some sellers are holding out, convinced that prices will continue to rise in the coming weeks.
“I definitely see that traders are reluctant to part with their metal because they could get a big boost if a duty [is applied],” one buyer said, referencing rumors of a wide-ranging tariff on aluminium imports
. “That alone is putting some upward pressure on things.”
And some buyers are in no rush to deal with the spot market. “We have people looking, a lot of it at the right price,” a second supplier said. “People don’t want to overpay.”
European aluminium premiums continue to push higher
The benchmark Rotterdam duty-unpaid P1020 premium
rose to $98-105 per tonne on January 23, from $95-102 per tonne a week earlier, to reach its highest level since March 2017.
The Rotterdam duty-paid premium
widened upward to $160-170 per tonne on Tuesday, from $160-169 per tonne previously, with large tenders reported at the lower end of the range.
Despite tight spreads on the London Metal Exchange, the price of European aluminium has continued to rise. The market is more focused on the surging US Midwest premium and a potential import tariff on aluminium products there, rather than on spreads.
Even though the February/March spread on the LME was at a $4 backwardation late on Tuesday afternoon, London time, some market participants expect that figure to swing into a contango soon.
“It’s going to disappear before it comes prompt,” one trader in Europe said.
Fundamentals in Europe are strong as well, with supply being tight.
“There is not much available prompt,” another trader in Europe said.
Premiums elsewhere in Europe moved higher as well. In Italy, the premium for P1020 material on a duty-paid fca basis
moved up to $190-200 per tonne from $187-197 per tonne previously.
The price of P1020 material in Spain on a duty-paid fca basis moved higher as well, to $185-195 per tonne from $180-190 per tonne.
MJP premium widens; rest of Asia stable
In Japan, the spot cif main Japanese ports (MJP) premium
widened upward to a range of $95-110 per tonne on Tuesday, compared with $95-105 per tonne previously.
Price indications rose as high as $115 per tonne but no deals have been reported at that level yet.
The bullish tone was fueled by higher US Midwest premiums and the threat of import duties in the US. Some destocking activity is expected in the first quarter because the financial year in Japan ends for most companies on March 31.
In China, aluminium premiums were firm this week, with in-warehouse
and cif basis Shanghai
premiums both being unchanged week on week at $90-100 per tonne.
The China aluminium import arbitrage
window remains closed, with import losses estimated at around $520 per tonne on January 23.
Chinese electrolytic aluminium production totaled 32.27 million tonnes in 2017
, up by 1.6% year on year.
“The yearly increase has slowed, with supply-side reforms and winter capacity cuts contributing a lot to this,” a Shanghai-based aluminium trader said.
Aluminium stocks on the Shanghai Futures Exchange rose by 9,818 tonnes or 1.3% last week to stand at 783,759 tonnes on January 19.
Several new aluminium projects geared towards the manufacturing of semi-finished aluminium products are expected to come online in China this year, which will exacerbate the issue of oversupply in the domestic market, according to market sources.
Premiums in South Korea, Taiwan, Singapore and Malaysia were unchanged this week amid slow spot trading.
The South Korea premium on an fca basis
was flat at $98-118 per tonne, with offers and deals heard at $105 per tonne in Busan. The cif South Korea premium
widened upward slightly to $95-105 per tonne, compared with $95-103 per tonne in the prior week.
The lower end of the ranges were seen as achievable for non-duty-free material, while the higher end was deemed by market participants to be achievable for delivery to Incheon.
In Taiwan, the cif premium
was stable at $95-103 per tonne cif on January 23, with offers heard on an in-warehouse basis and a lack of spot deals for both in-warehouse and cif basis material.
There remain concerns in the market about “fake” Chinese coils
being sold in Asia as substitutes for ingots, with some of the coils reportedly sold to South Korea and Japan, although sources said that it was unclear how many of these coils were being exported out of China.
“There is not much effect on P1020 premiums from the Chinese coils yet, but there could be in the near term, depending on whether the coil exports pick up momentum. At the moment, people are talking about it, but not all of them are accepting such coils,” an Asia-based trader said.
Brazilian premiums flat again
Aluminium premiums in Brazil were once again unchanged due to weak spot demand, with industry sources eyeing some upward pressure in the short term given the sharp increases in US Midwest premiums.
Spot premiums for P1020A material delivered to the São Paulo region
were flat at $230-240 per tonne on January 23, while premiums on a cif main Brazilian ports basis
remained at $160-170 per tonne, according to Metal Bulletin’s assessments.
“The recent spike in US Midwest premiums will eventually lead to an increase in the Brazilian premiums, especially domestically, because this is an important reference for the domestic market,” one seller said.
“We have to raise premiums because we buy [on prices] linked to the [US] Midwest,” a second seller said.
Offers in the Brazilian domestic market were reported as high as $250 per tonne for a standard 100-tonne lot, but no deals were concluded at this price.
“Spot demand is still very weak,” one buyer said, “and with the higher LME prices, this limits a potential increase in premiums.”
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