Aluminium market split on future direction of weakening Rotterdam P1020 markets

European aluminium premiums have fallen from recent record highs in the week ended Wednesday June 15 due to increasingly bearish sentiment and a drop off in spot demand, but there is disagreement in the market about how far spot premiums can drop in current conditions

Bears in the European aluminium market see premiums continuing to fall and plummeting over the next few weeks, while the bulls continue to argue that fundamental market tightness and continuing logistics issues will cap the declines.

Anticipation of better availability in the coming months has begun to put pressure on the recently well-performing European market, forcing duty-paid premiums down over the past two consecutive sessions.

Fastmarkets assessed the aluminium P1020A premium, in-whs dp Rotterdam at $575-610 per tonne on Tuesday June 14, falling from $580-625 per tonne the previous session to the lowest level since March 25.

“We continue to see the market coming under pressure. It feels like [the duty paid premium] is only just starting its downward correction,” one trader in the region said.

Offers were reported to Fastmarkets as low as $560 per tonne in the week to Wednesday, June 15, as well as transactions for prompt delivery at $535 per tonne.

The CME forwards for aluminium, which are cash-settled against Fastmarkets’ Rotterdam aluminium premiums, have most recently been trading in large backwardations, also strengthening bearish sentiment for some.

The duty-paid forwards were showing $460 per tonne for July to September 2022 and $425 per tonne for October to December 2022. By comparison, the current Fastmarkets mid-point sits at $592.50 per tonne.

“It seems that some people are looking at the extreme backwardation in the [CME] swaps curve from June-July and are getting nervous,” a second trader said. “It is creating a bit of a self-fulfilling prophecy.”

Duty unpaid premiums have also been under pressure from increasingly bearish sentiment - despite little spot liquidity reported over recent weeks - but have been holding up with more conviction than premiums in the duty paid market.

Fastmarkets assessed the aluminium P1020A premium, in-whs dup Rotterdam at $490-510 per tonne on Wednesday June 15, falling from $500-510 per tonne one week earlier.

“Europe has been the destination of choice because of high premiums, and we will see more supply that pushes the premium down more and more,” a third trader said. “People say that the consumer order books are full but what use is that if they are not buying against their order books because of worries?”

Floor in sight for others

Although the majority of the market agree with the recent dip in premiums, others think that the floor is relatively close due to continuing logistical issues that have been plaguing Northern European ports and causing long delays to unloading.

“Logistics issues aren’t just going to fix themselves like that. While logistics and power costs continue to impact [premiums], premiums won’t be able to fall too far,” a fourth trader said.

Premiums rose sharply at the beginning of the year following a wave of smelter curtailment announcements and rising European energy prices.

Additional pressure was placed on aluminium availability after the Russian invasion raised further questions over the ability of supply to meet demand.

The Rotterdam duty paid aluminium premium hit a peak of $600-630 per tonne on April 29, compared with one year earlier when the premium was at $230-240 per tonne.

“Everyone is looking at the second half of the year and traders are taking in less length to minimize the risk,” a fifth trader said.

“Although the problem could be that a lot of traders have destocked considerably [as a result of falling premiums] and if demand ramps up again later in the year there’s going to be a huge squeeze again,” they added.

Some participants noted that tonnages due to come into Europe have already been allocated. They told Fastmarkets that if a consumer wants large tonnages of a specific brand or purity, they will still have to pay a high premium.

A number of sellers also told Fastmarkets that they are still out of units, with nothing to sell.

“We are still very limited on tonnage and that is always dangerous. When you look at the market, it’s driven [by] sentiment and we saw a dip in premiums last summer and then everything went crazy again,” a sixth trader said.

Global aluminium inventory levels on the London Metal Exchange continue to fall. Inventories were most recently at 416,125 tonnes after falling for the past 29 consecutive trading days.

Only 41% of total aluminium stocks were available on warrant as of Wednesday 15 June, with over 240,000 tonnes already cancelled and scheduled out for delivery.

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