LONDON – So is the aluminum premium bubble well and truly over? It certainly feels that way.
Japanese buyers have just secured a premium of $90 per metric tons over London Metal Exchange (LME) cash metal for their fourth-quarter shipments.
As recently as the first quarter of this year, Japanese premiums were at a record high of $425 per metric tons (468 tons).
Moreover, these Q4 2015 premiums are the lowest since the third quarter of 2009, marking a return to historical norms.
The scale of the collapse in Japanese premiums is partly down to specific local drivers but even that statement reflects a return to normality, where physical premiums don’t move in global lock-step but rather mirror regional supply-demand dynamics.
U.S. and European premiums are higher at around $155 and $120 per metric tons respectively but have fallen a long, long way since the start of this year.
Good news for the LME itself, which has faced fierce criticism for its warehousing policies, perceived by many users as the root cause of the aluminum premium bubble.
Its increasingly aggressive reforms of its loading-out procedures have undoubtedly played a part in bursting the premium bubble, although market forces have arguably played an equal if not larger part.
The exchange is still working on even more radical solutions to its load-out queues. Is it becoming over-obsessed with a problem that has now to all intents and purposes been fixed?
ASIAN COLLAPSE
Japanese aluminum buyers took heavy collateral damage from the premium bubble.
There were, remember, no LME load-out queues for aluminum in the Asian region. The United States had Detroit and Europe had Vlissingen. Queues at both LME delivery locations were core but not exclusive drivers of the premium machine of 2012-2014.
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