European aluminium premiums are falling on high supply as buyers finally come into the market for metal, after a deathly quiet start to the year.

“The market is definitely not short; there is plenty of material around,” a producer said. “The USA, Japan and Australia are not sold out like some people are saying, and we’ve got a good amount of un-booked metal [available].”

Metal Bulletin’s duty-unpaid range fell to $385-400 per tonne on Wednesday January 15.

Duty-paid deals have been reported between $470 and $500 per tonne, while Metal Bulletin’s range sat at $480-500, while duty-unpaid business has been reported as low as $385 per tonne, against Metal Bulletin’s premium range of $400-430 per tonne.

This year began with a whimper in the European aluminium market, with buyers learning their lessons from a year previously, when a lack of buying at the end of 2013 saw premiums skyrocket in January 2014 as those buyers scrambled for material in a tight market.  

This year, consumers have secured enough volumes to cover their needs through most of the first quarter, and the traders have also been quiet.

“We’re only now phoning around to the end-consumers, and there’s nothing on the trade side,” the producer said. “The consumers are not coming to us and saying there’s nothing left like they were last year. The second half of January should bring more visibility.”

But deals started coming through to Metal Bulletin this week after London Metal Exchange aluminium prices fell below $1,800 per tonne on an official basis on January 7, for the first time since May last year.

“Below $1,800 is very attractive, and should bring the buying soon,” an analyst said.

Consumers came to the market this week for small tonnages, with traders reporting sales mostly for about 200 tonnes for delivery in the first quarter. Premiums for these deals have come up to $15 below Metal Bulletin’s premium range as it stood at the end of 2014.

With few buyers active and plenty of metal available premiums may fall further in the month, though in the longer term there is support from other regions. US Midwest premiums have risen this year, to $0.239-0.2425 per lb ($527-535 per tonne).

“There is definitely an arbitrage in favour of European [duty-paid] premiums going above $500 [per tonne],” the analyst said.

Sword of Damocles
But the aluminium market has its very own sword of Damocles in the form of huge warehouse stocks that threaten to swamp the physical market should storage deals lose their appeal for investors.

There are signs that the sword could fall this year.

“The bottom line is that some metal is now coming out of LME warehouses and into physical contracts,” a second analyst said. “Why would you keep metal in stock with the shaky premiums and tight spreads?”

The cash-to-three-months spread on the LME tightened to $8.5 per tonne on Wednesday from about $30 in the first week of the year. It has been very volatile since the middle of last year, slipping to a short-lived backwardation on November 11 before recovering back to a $33 contango, then falling to zero on December 4 before recovering again.

If the spread remains volatile or stabilises at a very low number, the viability of warehouse storage deals will disappear and more metal will be released to the market. It may be happening already.

“There is definitely more metal available,” a trader said.

Jethro Wookey
jwookey@metalbulletin.com
Twitter: @jethrowookey_mb