European primary aluminium premiums will rise again on short covering following the judgment of the UK High Court that has prompted the London Metal Exchange to delay the implementation of its new warehouse load-out rules, traders said.

The LME’s proposed linked load-in load-out warehousing policy will not go ahead on April 1 as planned, after the court found that the consultation carried out by the LME on the proposal should have included or made reference to the option of banning or capping rent in queues.

“There’s definitely no chance of the premiums going down now,” a trader said.

United Co Rusal, the complainant in the case, has welcomed the court’s decision.

Many consumers have been delaying their purchases for the second quarter and beyond this year in anticipation of lower premiums to come due to the warehousing rule change. Now that the change is not taking place, many will have to cover their short positions at premiums that already stand at record highs.

“This is very bullish for premiums – there are a lot of consumers waiting to buy. April was going to be a big month,” a second trader said. “There will be plenty of short-covering, and premiums will go up again.”

European duty-paid premiums already make up around 17% of the total cost of buying aluminium. Consumers will now be forced to cover volumes in a market that has been tightened by the arbitrage opportunities on offer in the USA and Asia, where premiums are even higher.

In the USA, the Midwest premium has fallen from earlier highs in January but remains well above European levels at about $400 per tonne, even though it does not include the same duties that the European duty-paid premium does.

European premiums could therefore soon rise to about a quarter of the cost of buying aluminium.

“Who can justify these levels?” the second trader asked. “In a boom market it would be ok, but right now it is beyond belief.”

Jethro Wookey
Twitter: @jethrowookey_mb