US Aluminum: Supply Tightness Keeps Premium At Higher Levels

NEW YORK (Dow Jones)--The U.S. Midwest prompt aluminum premium over London Metal Exchange cash prices is seen in a range from 4.8 cents to 5.5 cents per pound this week, compared with 4.8 to 5 cents earlier in the month. "It's stabilizing at higher levels," said a trader who cited the premium at 5 cents in a range from 5 to 5.25 cents. He said the higher premium is more about tighter supply than slightly higher demand. Some question whether demand increases are coming from funds or from users; nevertheless some demand increase has caused prices to move higher, said Mike Southwood, publications manager with CRU Group. He sees the premium between 5 and 5.5 cents. Much of the metal in warehouses is tied up in financing deals, Southwood said. While some market participants are skeptical of the price increase, they are nevertheless having to buy spot metal because of low inventories, said Jorge Vazquez, an analyst with Harbor Intelligence. He sees the premium at 5 cents within a range of 4.8-5.2 cents. "There's tightness in the market in terms of metal availability," Vazquez said, adding the increased appetite is coming both from funds and user restocking needs. "Demand is improving." The stability of the premium at higher levels than a few months ago is sustainable, Vazquez said. "It's not a flash in the pan," Vazquez said, noting improvements in the housing and automobile sectors. "Premiums will not only stay high but trend higher." LME cash aluminum was officially quoted at $1,702.00 to $1,702.50 per metric ton Thursday, or about 77.20 cents to 77.22 cents per pound. Inventories of aluminum stored in LME warehouses fell 1,825 metric tons to 4,553,650 from Wednesday to Thursday. The total is up from 4,512,525 metric tons one week ago. -By Matt Whittaker, Dow Jones Newswires; 212-416-2139; matt.whittaker@dowjones.com Click here to go to Dow Jones NewsPlus, a web front page of today's most important business and market news, analysis and commentary: http://www.djnewsplus.com/access/al?rnd=X0bs0EQAXByAe5bkm1bdZg%3D%3D. You can use this link on the day this article is published and the following day.