• US premiums hit a two-and-a-half year high following Section 232 developments
  • Rotterdam premiums move up alongside US increases, with speculation material could be routed to US
  • Premiums in Asia remain steady, though market bullish as a result of US increases
  • Brazilian premiums expected to stay flat until after Carnival holidays

US premiums hit May 2015 high
The US Midwest-delivered aluminium premium jumped 9% to a two-and-a-half-year high of 10.25-10.75 cents per lb on Tuesday January 16, up from 9.5-9.75 cents a week earlier, as producers aggressively offered higher numbers on the possibility that US government could soon implement stiff tariffs.

There has been growing speculation that the US government could impose protectionist measures following its Section 232 probe into aluminium imports.

The US Department of Commerce has until January 22 to submit its findings to the White House, which will then have 90 days to act.

Last week, the China Trade Task Force, a US coalition led by Century Aluminum Co, held a press conference to appeal to US President Donald Trump to sign off on a “comprehensive response” to global competition in the primary aluminium market.

While the ultimate outcome of the investigation is still uncertain, there has already been a significant impact on both the physical and futures market.

Producers are offering spot premiums for over 11 cents, while the CME Group’s US Midwest aluminium futures contract has ballooned into a significant contango, with the January contract at 10.1 cents per lb and the February contact at 12 cents per lb.

“With the 232, buyers are looking to cover their shorts,” a US-based futures broker told Metal Bulletin.

Premiums are also being supported by record-high freight rates, which have resulted from a structural truck driver shortage, new electronic logging device regulations and increased tonnages due to the strong economy.

“Trucking is killing me. There are lots of people looking to ship by rail,” a trader said.

Finally, the lockout at Aluminerie de Bécancour Inc’s (ABI's) aluminium smelter in the Canadian province of Quebec has forced the company to curtail two of three potlines, which represents a significant portion of ABI’s 430,000-tonne-per-year annual capacity. This will only further tighten a North American market that already runs a large natural deficit.

Higher US premium helps European market climb
The benchmark Rotterdam duty-unpaid in-warehouse aluminium premium moved up to $95-102 per tonne on Monday, from $92-99 per tonne a week prior.

Expectations of further stock wind-downs, strong demand and an increasing US Midwest-delivered premium lent support to the European market.

Some participants see material headed toward the United States to take advantage of the higher premiums and tighter market there.

Even if the Section 232 investigation does not lead to duties on primary aluminium imports, higher European premiums are here to stay, one participant noted.

“I see the US [premium] is still strong. They do not produce enough so they have to import. I’m questioning if this [US] duty thing is a game changer [for European premiums],” a European trader said.

Contangos on nearby London Metal Exchange spreads have narrowed recently, though participants said they expect it to be a temporary trend, with little effect on the rise in premiums.

The LME cash/three-month spread was at an $8.75 contango while the March/February spread was in a backwardation of $1 on Tuesday.

The Rotterdam duty-paid in-warehouse premium also bumped higher to reach $160-169 per tonne on Tuesday, from $158-165 per tonne a week earlier.

Market sentiment has been bullish with the LME three-month aluminium price trading at close to $2,200 per tonne over the past week, pushing the 3% EU import duty, and thus the premium, higher. However, less business was conducted for duty-paid material with most of the market's focus on the duty-unpaid premium.

The Turkey cif duty-unpaid aluminium premium narrowed upward to $120-145 per tonne on Tuesday, from $115-145 per tonne in the previous week.

Brazil market steady but potential short-term rise eyed
Brazilian aluminium premiums were unchanged for yet another week, but buyers and sellers noted that the market could start to feel some upward pressure in the short term given the rising US premiums.

Metal Bulletin’s assessment for domestic premiums on a ddp São Paulo basis were flat at $230-240 per tonne on Tuesday, where they have remained since November 7, 2017. Meanwhile, premiums on a cif Brazilian ports basis were stable at $160-170 per tonne, a range they have maintained since October 31, 2017.

“There has been no change in premiums this week, but we could soon see some increases due to the higher Midwest premiums,” one buyer said, adding that the Brazilian market is highly linked to the prices in the US.

Meanwhile, spot market activity remained slow this week, with the few reported deals having premiums within the published ranges.

But several consumers remained out of the spot market and activity is expected to remain at low levels at least until mid-February, after the annual Brazilian festival of Carnival, sources said.

US premiums stoke bullish sentiment in Asia; premiums steady

In Asia, aluminium premiums were mostly stable amid quiet market conditions this past week, with the spot cif main Japanese ports premium tightening to a range of $95-105 per tonne on Tuesday, compared with $90-105 per tonne previously. Some deals were reported toward the lower end of Metal Bulletin’s latest assessed range.

Indications as high as $110 per tonne were heard in the market alongside higher US premiums, but no deals have been reported at this level yet.

“We got a bid at $98 last week but we rejected it,” a Japanese trader said, adding that he was keen to sell at $105-110 per tonne.

The bullish sentiment in the Asian market has brightened further on the back of rising US premiums and some warrant cancellations in North America.

Some Asian participants said they were also keeping a close eye on the lockout at the ABI aluminium smelter in Canada as this has already seen US Midwest-delivered premiums tick above 10 cents per lb.

Japanese premiums tend to follow changes in the US Midwest premiums as regional arbitrage opportunities arise.

Some destocking activity is expected in the first quarter in Japan. In Japan, the fiscal year ends on March 31 and companies usually destock material to square their books ahead of that.

Total primary aluminium stocks at the three main Japanese ports stood at 241,900 tonnes at end of December, compared with 234,900 tonnes a month earlier, according to Marubeni Corp data released on Tuesday. Total stocks remained down by 12% or 33,600 tonnes from December 2016 levels.

In South Korea, the premium was unchanged week on week at $98-118 per tonne on a fca basis - the lower end was pegged as achievable for non-duty free material and the higher end seen as attainable for delivery to Incheon. There was limited spot trading in the market with buying activity yet to pick up since the New Year holidays.

Market participants in Asia are becoming increasingly concerned about talk of more “fake” aluminium coils being exported out of China and sold in the region as substitutes for P1020 aluminium ingots.

Japanese buyers were seen as unlikely to opt for these Chinese coils to replace P1020 ingots, but other Asian destinations are seen as more receptive to such coils, which could lead to supply pressures in Asia, sources said.

Chinese unwrought aluminium and aluminium product exports rose by 15.8% month on month and 12.8% year on year to 440,000 tonnes in December after a favorable SHFE/LME arbitrage encouraged exports.

In China, aluminium premiums were flat this week, with in-warehouse and cif basis Shanghai premiums both assessed at $90-100 per tonne on Tuesday, a range which both premiums have maintained since July 25, 2017.



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