Brazil aluminium premiums, especially for metal sold domestically, are facing increased upward pressure in the spot market due to soaring US Midwest premiums, with the industry preparing for potential heavy sanctions on imports into the United States.
This represents a 49% increase in the year so far, according to American Metal Market’s latest assessment.
“This surge in the Midwest premium is already pressuring costs for buyers who have contracts linked to it and it is leading to higher offers in the Brazilian market,” one seller said.
“If it explodes and goes super high, I think everybody will stop and think of alternatives. We might see many people trying to renegotiate contracts,” the seller added.
Several ingot supply contracts in the Brazilian market are priced using the US Midwest as reference. But many have already started to question this formula, which also dictates what happens in the Brazilian spot market.
“It doesn’t really make sense to quote metal in Brazil using the Midwest. Why should a Brazilian consumer pay for US domestic issues?” one buyer said.
Another seller concurred, adding that it would be “more rational” to have contracts in Brazil linked to Rotterdam premiums instead of the US Midwest.
“The Midwest is a very regional premium, that makes sense for the market there, while the Rotterdam premium is much more linked to a global pool,” the seller added.
Meanwhile, the uncertainties related to the US import situation is keeping most Brazilian buyers out of the spot market.
Metal Bulletin assessed the spot P1020A ingot premium at $260-280 per tonne on a delivered duty-paid São Paulo basis on Tuesday, from $260-270 per tonne a week earlier.
Offers were reported above the level of $300 per tonne for delivered metal, but no deals were heard at those levels.
“A local producer is making offers at Midwest plus at least $50 per tonne, but this makes business unviable,” a second buyer said.
Premiums for ingot imported into Brazil on a cif main ports basis came to $170-180 per tonne on Tuesday, unchanged week on week.
“There is an upward pressure to the Brazilian premiums, but demand continues to be weak and if the US really adopts sanctions on imports, this might mean that we will see a bit more offers for imported metal into Brazil,” a third seller said.
“So this might actually limit the impact of the Midwest rise to the Brazilian market,” the seller added.
Billet premiums on a cif Brazil basis were unchanged at $280-300 per tonne on Friday February 16, but industry participants expect premiums to move up soon given the higher ingot premiums.