US Midwest P1020 premium climbs, but aluminium market wary

The US Midwest aluminium premium has clawed its way back to higher ground, although market participants are concerned that another US government move on trade tariffs could potentially derail the correction.

American Metal Market’s latest assessment of the spot US P1020 premium put it at 20.25-20.75 cents per lb on Friday July 27, up from 20-20.5 cents per lb earlier in the week. This is the third assessment in a row that the premium has risen, indicating a correction from heavy discounting accompanying a backwardation in London Metal Exchange futures prices earlier this summer.

“It’s less bullish sentiment and more reality,” one supplier said, noting that replacement costs necessitate a premium above 20 cents per lb. “I think that’s truly what’s supporting these numbers.”

The correction in the premium brings it a step closer to the more than three-year high of 22-23 cents per lb reached in early April following the implementation of sanctions on aluminium sourced from Russian producer UC Rusal Plc.

The LME’s three-month contract closed the official session at $2,069 per tonne (93.9 cents per lb) on July 27 while the cash contract closed at $2,055 per tonne – a $14-per-tonne contango, which is a departure from the $50-60-per-tonne backwardation seen on the LME earlier this month.

Even with the backwardation alleviated for now, industry participants see other factors slowly creeping into market that could pressure the premium. The most prominent are recent comments from President Donald Trump’s administration suggesting that agreements could be reached soon to eliminate the metal tariffs from US-European Union dealings, prompting speculation that an agreement on the North American Free Trade Agreement (Nafta) and easing of Russian sanctions might not be far behind.

US Treasury Secretary Steven Mnuchin said on July 26 that the Trump administration aims to “resolve” tariffs between the two regions, echoing sentiment expressed in a joint US-EU statement issued a day earlier following a meeting between President Trump and European Commission President Jean-Claude Juncker.

“Great to be back on track with the European Union… This was a big day for free and fair trade,” Trump said in a tweet on July 25.

Meanwhile, a second supplier noted that premiums were firm, “but now the EU deal has made premiums vulnerable again.”

Even with the recent flurry of activity, spot demand for aluminium in the US is said to be quiet, with some suppliers reporting little to no interest from consumers.

“The market is not tight, P1020 is available and people know it,” a third supplier said, also noting that he received few calls about metal procurement this past week.

Such a slack spot environment is allowing some discounting on the premium despite the upward momentum currently being seen in the market. American Metal Market understands that discounts as high as 1 cent per lb off of the published premium can currently be obtained in some locations.