Talks over aluminium supply contracts for next year will continue through LME week, and suppliers will hope for better luck after failing to book much business so far.

The sticking point between buyers and sellers remains the record-high premiums that now make up about 12% of the cost of buying aluminium, from around 3% normally. Producers have been creating new types of contract in response to the high premiums, with shorter delivery terms and with floating, rather than fixed, premiums.

But aluminium consumers have not been signing these contracts. Recent industry events in Moscow and Dusseldorf have not yielded the usual rash of contract agreements, as the industry cannot decide where in the value chain these high premiums will be borne.

At some point between the aluminium producers selling on premiums and the end user that had never heard of the premiums until this year, the added cost must be shouldered, or be passed on to retail customers.

But nobody wants to be the one to carry that cost. So the talks have become disjointed, with producers trying to find ways to accommodate the current numbers, while the consumers simply want lower premiums.

If the consumers maintain this view and fail to sign supply contracts this week, they will be forced to cover more of their 2013 needs through the spot market. If premiums rise further next year, and the consensus is that they shall, those consumers may wish they had done more to secure supply now.

Jethro Wookey
Twitter: @jethrowookey_mb