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Primary aluminium premiums in Rotterdam have increased by around 10-15% since the beginning of December, with participants noting increased support to the market after months of continual decline.Emerging supply-side concerns – including new UK sanctions on handling Russian metal and ongoing disruptions for shipments in the Red Sea – have prompted higher offers in the market, participants noted, with London Metal Exchange forward spreads in wide contango providing a supportive backdrop.
The aluminium cash/three-month spread was most recently at $45.25 per tonne contango, narrowing from $48 per tonne contango the previous week but widening from $21.25 per tonne contango two months earlier.
“It’s the crank starting on the engine again. The market has been bad for so long now it needed something to boost it back into action,” one trader in the region said.
“The premium is unlikely to rocket from here, but it’s getting support and consumers are telling us that [their] 2024 sales aren’t too bad,” they added.
Fastmarkets’ twice-weekly assessment of the aluminium P1020A premium, in-whs dp Rotterdam was $190-215 per tonne on Tuesday January 2, up from from $185-210 per tonne two weeks earlier and up from $175-200 per tonne on December 12, when it had dropped to its lowest level since March 16, 2021.
Several transactions reported above $200 per tonne in the weeks ahead of year-end supported the increase, amid a regional uptick in spot liquidity with participants noting that the de-stocking period was ending.
But activity has quietened following recent European holidays, with participants noting a more subdued market in the first week of the new year.
“We’ve heard nothing from anyone in the past week,” a second trader said. “I have no doubt that once consumers return to the market, we’ll see a premium jump, but for now it’s difficult to justify a real rally while spot demand is slow and people are taking extended holidays.”
Market participants have been keeping a close eye on developments in the Red Sea after missile strikes in the region prompted major maritime firms to avoid using the route.
Participants noted that it was too early to see a significant impact on spot premiums in Rotterdam but said that some carriers were quoting vastly increased costs for shipments from the Middle East into Europe, with higher offers heard in the duty-unpaid market as a result.
“Middle Eastern units are key for Europe, and any disruption there could lead to a further premium impact,” the second trader added.
“There is a bigger embedded freight component in premiums than there used to be when Europe produced a million tonnes more metal,” a third trader said. “Now the market must attract metal from much further away.”
Fastmarkets’ daily assessment of the aluminium P1020A premium, in-whs dup Rotterdam was $135-155 per tonne on Tuesday, up from $130-150 per tonne on December 21 and up from $115-135 per tonne on December 14.
This is the highest premium level since November 1, 2023.
Participants had also been noting higher premium levels in Italy as a result of the disruption, with trades reported close to $250 per tonne in the region.
“Stock levels in Italy are a little lower than we see in Northern Europe, and the route via Suez is key for the Mediterranean,” a fourth trader said. “If you’re caught short in Italy, then you have to pay higher.”
Fastmarkets’ weekly assessment of the aluminium P1020A premium, fca dp Italy was $230-250 per tonne on Tuesday, up from $200-230 per tonne two weeks earlier and marking the highest premium level since October 17, 2023.
“The geopolitical situation in the Red Sea is likely to add cost pressure when it comes to moving goods into Europe,” Fastmarkets’ analyst Andy Farida said. “Most participants are coming back from the holidays, and as trade volume picks up next week, we could expect more liquidity and chatter that supports higher premiums if the Red Sea route continues unresolved.”
The timing of the sea route disruption is an added bullish feature in what is an already seasonally positive time of the year where some restocking activity will come.
“Premiums came off a lot in 2023, but now you have the situation in Suez, UK sanctions [on handling Russian metal], interest rates coming off and wide spreads [on the LME], which are together providing a boost to the premium,” a fifth trader said.
“The only two negatives – and they are factors that cannot be avoided – are that [end-consumer] demand is still lackluster and there are low premiums in the [US] and Asia,” they added. “It seems like Europe is getting a bit ahead of itself.”
Participants in the Japanese market continue to note a more subdued sentiment in the region despite the recent uptick for European premiums, with expectations for negotiations in the first quarter to settle lower than previous months.
Several deals for the supply of P1020 to Japan in the first quarter of 2024 were concluded at a premium of $90 per tonne, sources told Fastmarkets on December 28, after being revised downward from initial offers at $95 per tonne.
Fastmarkets’ twice-weekly assessment of the aluminium P1020A (MJP) spot premium, cif Japan was $75-80 per tonne on Tuesday, unchanged from the previous week but narrowing upward by $5 per tonne from $70-80 per tonne on December 22.
“Demand has been stable in Japan,” one Japanese trader said. “Most [participants] are trying to decrease their volume.”