US Midwest aluminium premium nears 3-year high amid myriad concerns

The US Midwest aluminium premium has risen again this week, jumping by nearly 5% on a combination of issues including transportation concerns and potential trade policy changes.

American Metal Market’s assessment of the spot P1020 premium rose to 10.5-11.5 cents per lb on Tuesday January 23, up from 10.25-10.75 cents per lb previously. The 4.76% rise brings the premium to its highest level since May 13, 2015, when the premium was assessed at 11-11.5 cents per lb.

Some buyers appear to have returned to the spot market, but logistics concerns - along with the news of the aluminium Section 232 report being delivered to US President Donald Trump - were the key drivers for the premium increase. In particular, sellers have expressed frustration with trucking spot rates, and traders reported experiencing difficulty in securing either trucks or rail transportation for spot loads.

“There’s no rates out there; truckers can charge what they want,” one supplier lamented.

And winter weather has hampered deliveries, particularly in the northern United States, pushing buyers to turn to the spot market to cover their needs. Notably, Rio Tinto plc was said to be having issues getting contracted volumes to customers - a problem compounded by the ongoing lockout at the Aluminerie de Bécancour Inc smelter in the Canadian province of Quebec.

Despite prevailing market sentiment, data from DAT Solutions suggests trucking rates may have slipped slightly in the past week. As of Saturday January 20, average van and flatbed rates - in dollars per mile - had dipped by 1 and 2 cents, respectively. Reefer rates stayed flat week on week, DAT Solutions figures showed.

Buyers noted that scrap supply has tightened to some extent – which is driving some customers back to buying prime aluminium on the spot market. But some P1020 sellers have been holding out on the conviction that prices will continue to rise the coming weeks.

“I definitely see that traders are reluctant to part with their metal, as they could get a big boost if a duty kicks in,” one buyer said, citing rumors of a wide-ranging tariff on aluminium imports. “That alone is putting some upward pressure on things.”

“If you need metal, you’re going to pay through the nose,” the first supplier said. “We’re not anxious to sell.”

And some buyers still are not in a rush to deal with the spot market.

“We have people looking,” a second supplier said, but noted that many of those inquiries were for deals “at the right price,” or below published prices. “People don’t want to overpay.”

“The availability of scrap and RSI [remelt secondary ingot] has reduced my need for primary,” a second buyer source said. “Hopefully this will continue, as it has improved profit margins. I think the traders are talking up the [US Midwest] premium.”

Scrap prices have inched up recently. Benchmark A380.1 prices rose to 98-99 cents per lb in AMM’s latest assessment, with market participants citing tight trucking availability and uncertain dependability.

The premium’s activity seems to be running independent of aluminium contracts on the London Metal Exchange, where a pricing contango has slimmed in recent days. The three-month contract closed the official session January 23 at $2,218 per tonne ($1.01 per lb), while the daily cash price closed at $2,213.50 per tonne ($1.00 per lb), rendering a spread of $4.50 per tonne.

AMM will soon issue a pricing notice and rationale informing readers about proposed changes to the Midwest premium assessment. AMM intends to adjust the frequency of its US Midwest premium to twice weekly, and is seeking comments from the market to gauge industry reaction.

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