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The sudden spike in aluminium premiums has been caused by the long queues for metal in Detroit and elsewhere, and financing deals, according to Nick Madden, senior vp and chief supply chain officer at aluminium fabricator Novelis.
“It’s important to dig deeper to understand what lies behind this unprecedented escalation in premiums,” he told Metal Bulletin.
Looking at the situation in the USA, Madden said, smelter closures and producer cutbacks are also having an impact.
“From my perspective, we are seeing a temporary and artificial shortage in the Americas,” he said.
“Producers [have made] cutbacks and US-based smelters [are] moving units to storage, despite local demand. [There are also] increasing levels of aluminium consumption.”
Madden added that he believes there is “more than enough” aluminium available to meet the rising demand in the USA.
However, the continuing popularity of financing deals has meant material continues to be held off-market, as there is still some benefit to be derived from higher premiums, Madden said.
“We believe the ongoing review and scrutiny by regulators […] in this market is critical, and with prudent action, could lead to [an] appropriate balance in the marketplace,” he said.
Novelis should be relatively well protected from the effects of the spiralling premiums by its “pass-through” business model – but could be affected by higher costs on purchases and sales, Madden said.
“The recent increase in the [US] midwest [and European] premium has certainly taken the market by surprise,” he said.
“The higher costs will affect Novelis’s purchases and sales, but our strong, pass-through business model allows us to absorb this without a material impact on our results,” he added.
The increase in costs will, however, ultimately filter through the supply chain and hit the end-consumer, which could be a very serious problem, according to Madden.
Premiums have climbed to record highs, both in Europe and the USA, in recent weeks, despite expectations that they would fall in the new year.
Duty-paid aluminium premiums in Europe now stand at $330-360 per tonne, in-warehouse Rotterdam, with further rises expected in the coming days.
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Claire Hack chack@metalbulletin.com Twitter: @clairehack_mb