Aluminum premiums stabilize in Europe, U.S., Japan vulnerable – by Eric Onstad and Yuka Obayashi (Reuters U.S. – September 19, 2016)

LONDON/TOKYO – Surcharges for physical aluminum have stabilized in Europe and the United States as more attractive financing deals and firmer demand tighten the market, but those in Japan are vulnerable to sliding further due to a glut of supply.

In all three regions, the surcharges, or premiums, which consumers pay on top of the London Metal Exchange cash price for immediate delivery, have steadily declined for most of the year, falling by around a third.

A key driver of the decline has been more material released from LME warehouses after the exchange toughened regulations, forcing warehouses to cut queues to get delivery of metal. European premiums were quoted in a wide range at $105-$135 a tonne for duty-paid metal in Rotterdam, with the upper end of the range up about $10 in recent weeks but still well down from $160-$185 at the start of the year.

LME aluminum spreads have made financing deals more lucrative, helping to siphon off some supply into warehouses, traders said. “Making money is difficult in this environment, but now that the contango has returned, more people are looking to buy metal (for financing deals),” one trader said.

Forward prices have to be high enough versus nearby ones, in a strong contango, to make finance deals worthwhile, in which metal is sold forward at a profit and stored.

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