MOSCOW (Reuters) - Russia’s RUSAL (0486.HK), the world’s largest producer of primary aluminum, said it expects aluminum premiums paid over the London Metal Exchange price to keep rising over the next year and a half.
“There are different scenarios of market development, including a decline, but we do not expect this during the next 18 months. Premiums will continue to rise,” RUSAL First Deputy Chief Operating Officer Vladislav Soloviev told the Metal Bulletin aluminum conference in Moscow.
RUSAL also said it expected a shift in aluminum supply contracts away from fixed cash premiums to a floating premium that would allow producers to lock in their margins.
“We expect to see a tendency to have floating premiums related to the underlying commodity contract, where producers are able to fix the margin over casthouse costs,” Steve Hodgson, RUSAL’s director of international sales, said in a presentation at the conference.
Hodgson said cash premiums over prices on the London Metals Exchange had risen to 10-12 percent of underlying prices. In the past, RUSAL had offered fixed premiums when the premium-to-price ratio was much lower.
This means Rusal could offer both fixed and floating premiums for its 2013 supply contracts discussions that start this week in Moscow and continue in London Metal Exchange week next month.
Most metals consumers negotiate term premium contracts with producers to secure supplies and then top up on the spot market which is subject to the volatilities of supply and demand.
Spot market premiums -- money paid over the benchmark London Metal Exchange (LME) cash price to secure physical metal -- have soared to record highs as vast amounts of aluminum are locked away in financing deals in places like the Dutch port of Vlissingen, the Malaysian port Johor and Detroit in the U.S., resulting in queues of up to a year to collect metal.
Aluminum premiums in Europe have been on a steady uptrend since the beginning of the year. Duty-paid physical aluminum in Rotterdam was quoted at a fresh record high of $270-290, rising from $260-280 at the end of August.
Duty unpaid was quoted at $210-230, against $210-220 previously.
Three-month aluminum prices touched a three-year low at $1,827.25 a tonne in mid-August, after falling more than 10 percent in the second quarter.
Additional reporting by Harpreet Bhal in London; Editing by Hugh Lawson