European aluminum premiums remained supported by the favorable returns on long-term financing deals, rather than on any significant consumer interest, market sources said this week.

 

Platts assessment for duty-paid Good Western, in-warehouse Rotterdam, was steady at $40-50/mt plus LME cash and unpaid, same basis, was steady at $25-35/mt. A7E, in-warehouse Rotterdam, was at $25-35/mt, while A7E FOB St. Petersburg at $18-22/mt.

 

"It's been horribly quiet and we've actually had a few non-transaction days this week," a European trade source said, adding that there was no news on the consumer side, but there was still appetite traders. "I had a call this morning from a trader asking for whatever he could get," he said, adding that money was cheap and with the contango it was attractive and fairly risk-free to finance metal.

 

"For this reason, consumers might find themselves paying fairly high premiums because the risks of costs of doing business will be built in," he said, adding that the big deals with traders were providing a credible benchmark, "so why should I sell for less when it comes with risk and administration."

 

A producer source said the market was "deadly quiet" in terms of consumer interest. He said while he could get $50/mt for metal if he sat on it for a year, he'd prefer to sell now. "But consumer purchases are very hand-to-mouth and credit is still very much a concern. It limits the number of people you can do business with," he said, adding that credit tightness would eventually affect traders too -- there will be a limit to how much metal can be financed with other people's money, he said.

 

Newedge's head of metals, Steve Pettitt, said in a report Friday morning that there was an interesting play in the aluminium market at the moment -- the process of 'locking up' inventory. "The forward curve is providing opportunities for entities with warehousing ability to borrow Dec 2009 – Dec 2011 for example at $250. They then have two options when the trade becomes prompt: they can either store it in their own warehouse at cheaper rents than LME warehouses, or if the spread has narrowed, re-lend the material to the market at a profit," he said.

 

Pettitt added that overall, "for as long as the blinkered lemmings want to believe that the world recession has turned the corner, the metals will continue to tick up." "However, with unemployment growing, consumption dropping, but production continuing (and taking advantage of the higher prices this year), when the market turns it is unlikely to be taking many prisoners," he said.

 

A UK-based trader said he'd made one sale of 300 mt of P0610 at $60/mt, in-warehouse Rotterdam, this week, which he was "amazed at." He said for P1020 this normalized to around $50/mt, same basis. "Apart from that sale, customers are still delaying their deliveries. If they are consuming, its from last year's contracts," he said, adding that premiums were supported by the favorable returns on long-term financing deals, and were at $40-50/mt for duty-paid and around the same for unpaid. "It's a struggle to find unpaid. Unpaid Russian is going to warehouse deals, FOB St Petersburg metal is going to China -- so Europe is starved of it," he said.

 

A consumer said he'd not been in the market, but he understood that the only activity was traders buying metal to finance, which had put a floor under premiums. A second consumer said they been busy with internal business and there was nothing "exciting on the purchasing side." –Platts