SINGAPORE, Mar 20, 2012 (Dow Jones) -- Singapore aluminum premiums are rising amid tightening supply in Southeast Asian terminals as large volumes of metal move into long-term financing deals.
In Singapore warehouses, premiums to three-month London Metal Exchange aluminum are around $90-$100 a metric ton, $15 higher than a month ago, Singapore-based traders said. Offers for prompt metal are as high as $120/ton, one of the traders said.
They attributed the higher premiums to tightening supply in Singapore and Malaysia, as market participants continue to move large tonnages of aluminum into financing deals, which can keep metal off the market for years at a time.
Warehouse deals became a major feature of the market when demand fell during the 2008-2009 financial crisis. Producers struck deals with investors, traders and banks by pledging metal to raise cash. With demand weak, storage costs low due to low interest rates and forward LME prices trading at a premium to prompt contracts, the deals are once again proving popular.
"There's really not much available stock in the market," one Singapore-based trader said.
Traders said that while premiums have been rising due to tightening supply, demand from Asian consumers hasn't strengthened substantially in the last few weeks.
"The reason the premiums have gone up is only because there's less metal around," a second trader said.
Supply is so tight in Singapore and in the Malaysian port of Johor that some traders said they have stopped accepting enquiries for aluminum from customers because they're concerned they can't fill the orders.
The high level of canceled warrants in LME-bonded warehouses indicates the huge volumes of metal on the move between terminals as aluminum owners seek out the best rent deals, traders said.
Canceled warrants--a proxy for metal about to leave warehouses--stood at 32.98% of total stock Monday compared with 13.33% at the start of the year. Singapore aluminum stocks totaled 555,100 tons Monday, down 2.1% since the start of the year.
LME three-month aluminum is trading around $2,270/ton, down 2.5% since the beginning of March but 12.4% higher since the start of the year.