The benchmark Rotterdam P1020a duty-unpaid premium dropped to $95-105 per tonne on Friday March 2 from $100-107 per tonne the day prior, with participants selling lower because of pressure from unfavorable LME spreads throughout February.

It was the first time the premium, which remained at $95-105 per tonne on Monday March 5, has fallen since October 2017.

Although the cash/to-three-month spread has swung back to a $13 per tonne contango, the persistent backwardation throughout February forced some participants to sell lower late last week. The backwardation touched $50 per tonne on February 20, its widest in 11 years.

The spreads prompted sluggish volumes on the European market from the end of February through the beginning of March.

The lack of market activity for several weeks has forced some with long positions to start liquidating material at the end of last week below the $100 per tonne mark, one trader in Europe said.

Concluded deals, some as low as below $90 per tonne levels, were reported to Metal Bulletin last Friday. A second-quarter tender was also reported below $90 per tonne.

The timing of the fall coincided with the US President Donald Trump’s announcement on Thursday March 1 that he planned to implement tariffs on aluminium and steel imports, but market participants said the prolonged backwardation in February was the primary reason driving premiums lower.

“It’s more the spreads. I don’t believe it’s linked to 232,” a second trader in Europe said. “People have been suffering [from the backwardation].”

“The spreads are not supportive for the premium,” a third trader said.

The reversal of the spread to contango however, is giving some participants grounds to believe that the premium fall was just a blip and a rebound is now on the cards.

“What if the contango comes back further? Maybe it’s a small decrease [in premiums] but not for a long time,” the second trader added.

The contango on the cash/three-month spread will need to widen further for traders to profit from holding metal. Market sources said metal financing costs have increased in recent months closer to $20-25 per tonne per quarter due to rising borrowing costs.

Mixed 232 sentiment
Though there was little immediate effect from the Section 232 announcement on European premiums last Thursday, most participants anticipate it to be bearish for Europe in the longer term with Europe taking on a glut of the supply originally intended for the US market.

“People are expecting more metal in Europe. You have the Russian metal, which will come to Europe [as a result of aluminium tariffs in the US],” a fourth trader said.

Still, if some metal is diverted away from the United States to Europe in the near-to-medium term and if that metal reaches LME warehouses, that could be supportive of a wider contango and thus potentially of premiums at the same time, one market source said. Tight metal stocks in Europe were expected to make LME spreads volatile throughout the year.

“If there are more units coming, it’s not bad news. Europe is short. We need more metal,” the second trader said.