| FORT LAUDERDALE
FORT LAUDERDALE Jan 14 The unprecedented surge
in U.S. aluminum premiums to record highs has renewed concerns
about the dwindling supplies and rising costs of a key raw
material for automotive and beverage can makers, even as the
market struggles with big stockpiles.
The U.S. premium for aluminum, paid on top of the London
Metal Exchange for physical delivery, surged 45 percent in a
matter of days last week and is holding record highs around 17.5
cents per lb.
The jump has mystified General Motors Co, one of the
biggest end-users of aluminum.
"I've not heard a convincing reason for the premium," Saber
Haidous, global commodity manager for GM, said at the Platts
aluminum symposium on Tuesday.
His comment reflects widespread confusion in the market that
has brought spot activity almost to a halt and unnerved
consumers, who have complained that high physical prices are
costing the industry billions of dollars.
The premiums are "artificially high," Jim Makki, Novelis
vice president of North American operations, said at the
conference. "We're very concerned about the pick-up in the
In recent years, the world's top flat rolled products maker,
which supplies Coca Cola and other big beverage can makers, was
one of the biggest critic of the LME over its handling of the
crisis surrounding its warehousing policy.
Novelis and other end-users have complained that LME rules
inflated physical prices and distorted supplies.
Under regulatory, legal and political pressure, the LME has
announced plans to increase sharply the rate of deliveries from
warehouses with long wait times and big stockpiles, a move that
is expected to put pressure on premiums.
Traders agree that the rise in premiums was due to a steady
dwindling of spot supplies and small delays in deliveries caused
by the cold spell in the U.S. industrial heartland.
Availability has tightened as low interest rates and a wide
forward price structure keep millions of tonnes of metal locked
up in financing deals, while producers have cut output and a
small but important smelter, Ormet Corp, closed last
Estimates on the size of the stockpile stored outside the
LME range from 4 million tonnes to 15 million tonnes.
NOT A FLASH IN THE PAN
For now, premiums are holding firm and merchants have been
speculating if it will lure more metal from Russia, the Middle
East, or even Europe.
"It doesn't seem to be a flash in the pan. We'll see how
long it lasts," said INTL FCStone analyst Ed Meir at the
The United States, a net importer, is having to compete for
aluminum with Mexico and Brazil, which traders say are also
short because of lower production in the region.
"The big question everyone's asking is what will happen to
imports?" said a U.S. trader.
Premiums would have to stay elevated for weeks or months
before traders divert metal to the United States. Many hope
European and Japanese premiums will follow the U.S market
First quarter premiums for Japan, Asia's No. 1 importer,
were set at a record $250 per tonne.
Some traders might not renew financing deals if premiums are
"Why not just make a quick buck while you can? The premium's
a better return than the contango," said the U.S. trader.