North American Aluminum Premiums Rise, CRU Says

LONDON, July 19 -- Premiums paid for aluminum in North America climbed this month because of a scarcity of the lightweight metal, researcher CRU said.

The Midwest premium increased to 6.5 cents a pound at the start of this month, Marco Georgiou, an analyst at London-based CRU, said yesterday. That was a five-year high and compares with 5.5 cents at the end of 2009, he said. The premium is added to the price of metal for immediate delivery on the London Metal Exchange.

Aluminum stockpiles in LME warehouses in the U.S. have dropped 5.4 percent from this year's peak in May. Financing accords have tied up about 80 percent of all inventories tracked by the LME, according to estimates cited by Sucden Financial Ltd. Immediate-delivery metal's discount to the three-month price has shrunk because of the supply dearth.

"The spot market is quite tight," Georgiou said by phone. "We still have a lot of metal tied up in financing deals."

Transportation difficulties also have crimped supplies, according to Georgiou. The number of trucking companies in the U.S., the world's second-largest consumer of the metal after China, slid during the global financial crisis, William Adams, an analyst at Basemetals.com, said on July 14 during a presentation at Sucden in London.

"There have been logistical constraints to get the metal out of the warehouse and onto the correct kind of truck," Georgiou said.

Exchange Rule

Adams also cited an LME rule that obliges deliveries of at least 1,500 metric tons of aluminum daily from inventories monitored by the exchange per warehouse company and per location. The rule applies to delivery requests for 1,500 tons or more of metal. The LME tracks stocks in the Americas, Europe and Asia.

"The number of truck companies has declined, and also there is this limit on how much metal warehouses can let out per day, and that is also keeping tightness on the market," Adams said.

Demand for aluminum in North America improved every month from January to June, according to Georgiou. He predicted, though, that the current scarcity will ease because more production is expected to come on stream in the current quarter, particularly in the Middle East, and demand likely will slow in the current half.

"We probably would expect the premiums to either peak or be close to it over the next couple of months or so," Georgiou said.

Aluminum for three-month delivery rose $5, or 0.2 percent, to $2,021 a ton at 9:30 a.m. on the LME. Immediate-delivery metal's discount to the three-month price, the so-called contango, narrowed yesterday to $16.25, the lowest closing level since April 2007, according to data compiled by Bloomberg.