European aluminium premiums face new wave of support from buoyant Asian markets

An ongoing disruption to trade via the Red Sea and recent strength in some Asian markets are providing support to aluminium premiums across Europe, despite a continued period of low regional demand, participants have told Fastmarkets

Higher freight costs combined with Europe’s increased reliance on imported tonnages, had led to some higher offers in the market, while subdued demand continued to restrict premium upside, participants said.

“The market turned on its head where Asian weakness kept a cap on Western premiums for years, and now suddenly Asian strength (China mainly), is going to force the West to pay up when it finally starts needing fresh metal again,” a trader in Europe said.

“Replacement costs are so astronomical [that] it is almost irrelevant… until the market actually needs the metal, and then suddenly [they are] very relevant and very high,” the trader added.

Fastmarkets assessed the aluminium P1020A premium, in-whs dup Rotterdam at $180-190 per tonne on Tuesday February 27, rising from $175-190 per tonne the previous day and up from $135-155 per tonne at the beginning of the year, following fresh transactions reported close to the high end of the range.

Despite the recent increase, the duty-unpaid premium remains 13% lower than $205-220 per tonne at the same time last year after declining to $115-135 per tonne in November 2023, its lowest level since February 2021.

Weak industrial demand and high financing costs led to a feeble European market across the second half of 2023, but participants have noted the need for European premiums to remain attractive to imported tonnages going forward, following the significant domestic capacity cuts that were seen across recent years.

Freight costs and European premiums steer producers towards Asia

Increased freight costs resulting from disrupted trade via the Red Sea, coupled with lower premiums in the European market have also meant that some producers have been looking to sell into Asia over Europe until higher costs are better reflected in the premiums, some sources added, in turn reducing the quantity of metal being sold into Western markets.

“The Red Sea situation is not improving at all and has lasted a lot longer than anyone was expecting,” a second trader said. “I think there’s a slow realization that this thing could fly if the market does start trading on full replacement costs.”

“Europe is in a difficult position at the moment where demand has been low and so are premiums, which means that no one is really bringing additional tonnes over,” a third trader said.

“If you look at the figures, Europe needed to import significant volumes in 2023, and in order for the market to function going forward [the premium] needs to be able to incentivize those tonnes coming here again. Not only is Asia pulling in units now, but container rates have gone through the roof which means that the level to incentivize has also gone higher,” the third trader said.

Chinese aluminium premiums had recently moved higher amid an improved import arbitrage window in February, following the recent Lunar New Year holidays.

Fastmarkets assessed the aluminium P1020A premium, cif Shanghai at $125-135 per tonne on Tuesday, rising from $120-130 per tonne on January 30 with participants noting offers in the market at $140 per tonne and above.

This is the highest premium midpoint for the CIF Shanghai market since October 26, 2021, when the premium midpoint was $135 per tonne.

“Sentiment among traders, especially those in Asia, has turned rather positive after a relatively depressed and slow start to the year,” Fastmarkets’ analyst Andy Farida said.

“The backdrop of a healthy contango in the nearby spread, the prospect of Chinese metal demand returning after the Lunar New Year and a restocking appeal are providing much needed fuel for all premiums we follow, bar that in the US Midwest,” he added.

The London Metal Exchange cash/three-month spread was most recently at $48.36 per tonne contango, widening from $33.50 per tonne contango a week earlier.

Likewise, increased offer levels have been heard for second-quarter supply in the Japanese market, following a rise in the spot market premium.

The initial producer offer for main Japanese ports (MJP) supply in the second quarter was heard at $155 per tonne, participants told Fastmarkets, $65 per tonne (72%) above the first-quarter premium which was settled at $90 per tonne.

“Many participants don’t have much metal and the market is getting tighter,” a trader in the Japanese market said.

“We’re seeing fewer market participants offloading units, and more being in a buy position,” the trader added.

Weak demand remains heavy on the market

Meanwhile, some participants were wary of the recent increase to European premiums, noting that weak demand continues to weigh on the market despite increases in other global locations.

“Demand is pretty mixed and it’s slow,” a fifth trader said.

“If you’re really wanting to sell something, your main option remains the trade, and it’s still easier to buy than it is to sell. Freight is more a story for the longer term, but the reality for nearby is that demand just isn’t great and it’s difficult to see the premium having a sustained rally,” the fifth trader added.

Several aluminium producers reported significant declines in their financial earnings for full-year 2023, pointing to weaker European consumption and lower all-in aluminium prices, while a mixed spread of transactions has been reported in the duty-paid market, with some sellers still noting good availability of units for the nearby.

Fastmarkets assessed the aluminium P1020A premium, in-whs dp Rotterdam at $240-255 per tonne on Tuesday, unchanged since January 26.

Some participants in the Asian markets have also questioned the longevity of the premium increase on the back of relatively low demand.

“I don’t think China’s domestic downstream demand for aluminium is that robust at present. It seems the rising premiums are more likely driven by bullish sentiment instead of real consumption,” a market source said.

To understand the complex market conditions influencing price volatility, download our monthly base metals price forecast, including the latest copper price forecasts today. Get a free sample.

What to read next
The price of tin on the London Metal Exchange has reached highs in April 2024 not seen since 2022, with investors betting on the metal having a significant role in the expansion of renewable energy and for technical purposes, while supply remains uncertain
Nickel premiums stayed flat around the world amid quiet trading in the week to Tuesday April 9.
Stocks of base metals in Shanghai bonded warehouses showed mixed fortunes in March, Fastmarkets has learned
Recent developments in the aluminium industry have provided incremental steps toward the industry’s decarbonization, but green energy sources, inert anodes and end-of-life scrap recycling can offer disruptive advances to achieve this goal, according to Peter von Czarnowski, director of casting technology expansion at Golden Aluminum.
The low-carbon differential for aluminium P1020 in Europe was unchanged in the month to Friday April 5, with market participants reporting decreased interest in low-carbon units.
With excerpts from our quarterly tin round up, we share why we were bullish with our tin price forecast in the first quarter of 2024