Aluminum premium slips again, scrap favored 

NEW YORK — The Midwest aluminum premium has slid for the third time in as many weeks, with sources telling AMM that the spot market for prime aluminum is slack due to continuing scrap availability and a growing backwardation of aluminum prices.

“I think a lot of people forward-bought for this year,” one supplier said. “They were trying to lock (prime aluminum) in for fears of potential shortages. … That and scrap (availability) combined is making the spot market dead.”

“We have abundant scrap, more than we need,” a second supplier confirmed.

One buyer also agreed that there was no need to purchase spot P1020 thanks to scrap being an available and cheaper alternative.

Certain smelter-grade aluminum scrap tags dropped by 1 cent per pound late last week while mill-grade scrap prices stayed flat, according to AMM’s assessment.

Meanwhile, a new factor introduced to the market is backwardation on the London Metal Exchange: The LME’s three-month aluminum contract closed the official session May 17 at $1,926 per tonne (87.4 cents per pound), while the daily cash price closed at $1,928 per tonne (87.5 cents per pound), for a negative spread of $2 per tonne.

“A back(wardation) is brewing, and it doesn’t look pretty,” a third supplier said. “There is a big back coming on that will force units out (onto the market).”

If a backwardation does spur a flood of metal onto the market, then it will certainly contribute to the pressure already weighing on the premium. AMM’s latest assessment of the P1020 spot premium places it at 9 to 9.25 cents per pound, down from 9.15 to 9.5 cents per pound previously.

However, while signs point to a continuing decline of the premium, not all who spoke to AMM were convinced of a downward trend.

“I talk to some people and they say that the market is still strong,” the first supplier said. “Others say that the market is dead.”

“I talked to two consumers last week; they both felt that (the premium) was firming,” a fourth supplier said.

The Section 232 investigation launched by President Donald Trump late last month has not prompted any widespread changes on current prices. And with allegations of White House misconduct piling up, some market participants doubt that a 232 case will come to fruition, let alone move the needles of market dynamics.

“Forget about the 232; Lighthizer is going to be frozen,” the third supplier said, referencing the recent confirmation of veteran trade attorney Robert Lighthizer as U.S. Trade Representative. “How are (lawmakers) going to work with (Trump) when everything is going to be damage control?”

Tariffs may become hard to enforce without legislative cooperation, that supplier opined.

Kirk Maltais
kirk.maltais@amm.com

Source

AMM

may 17, 2017

May 17, 2017

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