Aluminum Premiums Poised to Climb on Supply Outlook, CRU Says

Feb. 23 (Bloomberg) -- Premiums paid for aluminum in Europe are poised to rise further on prospects for limited supply of the lightweight metal, according to researcher CRU.

The fees, added to the price of immediate-delivery aluminum on the London Metal Exchange, reached $180 to $190 a metric ton this month in Rotterdam, said Marco Georgiou, an analyst at CRU in London. That compared with $160 to $170 in January, he said, adding that advancing prices lifted the premiums.

Withdrawing aluminum from the world’s second-biggest inventory in the Dutch city of Vlissingen may take as long as 15 months, researcher Harbor Intelligence said Feb. 21. Financing transactions will keep some stockpiled metal tied up, according to CRU. Alcoa Inc. plans to limit production of aluminum at Spanish and Italian smelters.

"If demand holds steady and the production curtailments happen within Europe, we could see a little bit of tightness coming in the second quarter,” Georgiou said by phone Feb. 21.

Aluminum for three-month delivery has averaged about $2,230 a metric ton so far this month on the LME, data compiled by Bloomberg shows, up 2.2 percent from the figure for all of January. The metal, used in products from beverage cans to aircraft, has gained 13 percent this year on the exchange.

Canceled Warrants

Orders to withdraw aluminum from LME stockpiles, or canceled warrants, rose to a record Feb. 21 even as inventories of the metal also climbed to an all-time high. Canceled warrants in Vlissingen almost doubled in the two weeks before this week and as of yesterday came to 912,900 tons, or 91 percent of local inventories, daily LME figures showed.

"The surge in canceled warrants is helping reinforce that sense of prompt tightness in Europe,” David Wilson, an analyst at Citigroup Inc. in London, said by phone Feb. 21. “The cancellations in Vlissingen are part of the game to try to squeeze up premiums.”

Aluminum held in the city and tracked by the LME rose above 1 million tons for the first time Feb. 21. The largest global stockpile is in Detroit, which holds 1.43 million tons out of total LME inventories of 5.12 million tons.

About 70 percent of LME aluminum stocks are tied up in financing transactions, Wilson said. Investors can buy metal for nearby delivery and make a forward sale at the same time to take advantage of the market’s contango, when contracts with later dates trade at higher prices than nearer-dated metal.

Storage Expenses

Immediate-delivery aluminum closed yesterday at a discount of $43.25 a ton to three-month metal, according to data compiled by Bloomberg. The gap on Feb. 20 was at $43.75, the widest level since December 2008. Funding and storage costs influence profits on financing transactions.

Alcoa, the biggest U.S. aluminum producer, said Jan. 9 it would cut 240,000 tons of capacity at smelters in Portovesme, Italy, and La Coruna and Aviles in Spain in the first half. The company is reducing global smelting capacity by 12 percent. Zeeland Aluminium Co., based in Vlissingen and producing 230,000 tons a year, was granted bankruptcy in December.

Still, daily deliveries of aluminum into Vlissingen warehouses have averaged 12,698 tons this year, seven times higher than outbound shipments of 1,800 tons, according to Bloomberg data.

Reduced European output may prompt consumers to seek supplies from outside Europe or LME warehouses, said Wilson at Citigroup. Consumer inventories may be low because bookings of metal for this year were too small, according to Gayle Berry, an analyst at Barclays Capital in London.

The premiums quoted by CRU include a European import duty equal to 3 percent of the LME price, Georgiou said. Fees for duty-unpaid aluminum rose to about $120 a ton this month from $115 in January, according to the researcher. Premiums surged to about $132 a ton last year, the highest level in at least 10 years, CRU says.