US primary aluminum market flat, lead time concerns loom

Aluminum premium inches down 6.35 cents + LME on renewed buying.

The Platts US aluminum Transaction premium inched back down to 6.35cents/lb plus LME cash, delivered Midwest, on renewed buying interest afterindustry meetings concluded. This is down from a previous 6.5 cents.

A mill consumer reported downward pressure on the premium as he was ableto beat his prior purchase by a quarter cent late this week for a largetonnage. "I did buy and pretty much across the board I paid 6.2-6.25 cents,delivered" for a close-fright Midwest destination, the mill consumer said. "Wepaid anywhere from 0.25-0.3 cents under the [Platts] Midwest number." When asked what was driving the premium down, the consumer wasn't sure,though he ventured the large volume of his deal contributed somewhat to thelower premium. "I pushed for it, and they all bit," he said. "Part of it was Iwas offering a very significant tonnage. These were not small deals." A billet remelter wasn't in the market for material, but thought he couldbuy P1020 at 6.4 cents. "I think P1020 is probably solid at 6.5, but I think Icould get 6.4 pretty easily right now. The prime guys are calling, looking forextra orders," he said.

A producer buyer echoed that the premium was still weak, saying hethought he could buy at 6.25 cents, for Midwest delivery, net-30, though hehadn't tried to lock in any material in a few weeks.

Another lower-priced deal was reported by a trader who purchased P1020 at6.25 cents/lb. "I don't think I would need to pay more than 6.5 for metal.

There are folks around with numbers slightly better than that." However, sellers expect spot deals to pick up next week, and severalproducers and traders continued to peg the market firm due to tight scrap andthe retreat of backwardation.

"Right now I am still seeing premiums strong," a producer buyer told Platts. "It seems that with scrap being relatively tight and now that thebackwardation is gone, I think the premium [at] 6.5 makes sense… Is it anystronger than that right now? I don't know… but I don't think so.

One trader told Platts that sales were very quiet given two consecutiveweeks of industry meetings. "Anything I have sold is a little above thepremium," he said. "I sold a small amount of ingot into the south at 7.7,net-30. That area of the south tends to get a higher premium and ingot is atmore of a premium these days." A producer sold P1020 at 6.5 cents for Midwest delivery, though he saidhe wasn't happy with the number and was pushing for 6.75 cents/lb. Still, heconceded sales were limited amid weak buying interest over

WAREHOUSE LEAD TIMES A CONCERN INTO 2011 Looking further out, a trader told Platts that the high proportion ofcancelled warrants at the LME-registered Detroit warehouse would keep thingssnug into next year, with lead times for delivery stretching out as far asFebruary. "The only thing interesting in P1020 is the whole thing with theDetroit warrants; we think this will keep things very, very firm for a while,"the trader said.

"If you cancel a Detroit warrant right now cant get metal out untilFebruary -- right now we know for fact because we canceled some warrants, andthey gave us last few days January," he said. " And this will keep thepressure on the premiums. Right now if you just buy from the LME and take itto warrant you're going to get Detroit…it goes back to the whole thing rulesare you only have to get 1500 mt out each day so there's a tremendous backup."The trader said that he hadn't done any P1020 business this week, but saidthat he was "bullish on the premium; it's going to go up." Another trader agreed that the Detroit warehouse lead times would prop up the premium. "There has been a big cancellation of warrants in Detroit forP1020 and so the Midwest premiums may go up a penny, so I am at 7.5," he told Platts.

For 2011 sales, a producer reported a deal for 2011 at 7.5 cents,delivered Midwest, net-30. However, an extruder contested that forwardpremiums weren't that high. "The premium six months out is higher than we aretoday, but once you go above 7 cents I think you are going to see metal creepout of inventories," he said. "So, I have a hard time telling anyone it willbe above 7 cents; 6.75 is probably a pretty good number." The Plattsassessment for six-months forward P1020 remained 6.75 cents/lb plus LME cash,delivered Midwest.

SPOT BILLET SALES FIRM2011 TALKS ENSUE

Nearby billet sales remained firm, and the Platts billet upcharge wasunchanged this week at 10-11 cents/lb, plus P1020, net-30 payment, for Midwestdelivery.

In discussing 2011 contracts, there was murkiness in the number, withsome sellers forwarding that next year's sales were at 11 cents, but otherslocking in 2011 lower at 9-10 cents. "If there are higher numbers for nextyear, I'm not seeing them," the first producer said. "I've been selling fornext year at 9-10 cents fixed." But the third trader said he wouldn't sellbillet under 10 cents for next year, and pegged the number higher at 11 cents.

"For next year everything is double digits," he said. "We're not interested inanything under 10 cents for next year." The first producer buyer was offered billet in a wide range of 10.5-12cents/lb, delivered Midwest. "We've been needing some September and Octoberbillet, and it's been at 10.5 to almost 12 cents for spot metal into theMidwest," he said.

 An extruder told Platts that the range was tighter, saying, "On thebillet spot premium, we've been able to do some regular transactions between10 and 11cents, depending on freight and location. I don't think we've soldany billet lately for less than 10 and I don't think we've been able toachieve more than 11."