Aluminium premiums expected to hit record high in 2015

SYDNEY, Dec 11 (Reuters) - Global aluminium premiums are expected to reach fresh record highs by mid-2015 on a supply deficit in the United States and Europe, a Reuters survey
showed.

Premiums have surged this year, more than doubling in the United States, as a revival in auto demand spurred aluminium consumption, while smelter shutdowns and use of the metal in financing deals squeezed supply.

But premiums next year will rise at a slower pace as new rules reduce queues at warehouses and as higher all-in prices encourage smelters to ramp up production.

According to the survey of 11 sources from aluminium consumers, producers and trade houses - who declined to be named as they were involved in 2015 term deal talks - global premiums are most likely to hit records in the second quarter.

"The world, excluding China, will continue to be in short supply due to shut downs, production curtailments and strong demand in South America and North America," said one respondent.

China restricts exports of aluminium, but it has stepped up exports of semi-manufactured products which attract tax rebates and could douse Asian premiums next year.

The world ex-China is seen in a deficit of 1.75 million tonnes in 2015, according to Australia's Macquarie bank.

Premiums are a surcharge paid on top of London Metal Exchange (LME) cash prices, which together is the all-in rate paid to smelters or traders to obtain aluminium.
 
          
U.S. TO SEE HIGHEST PREMIUM IN 2015
U.S. premiums, which have soared on smelter closures force by higher power and labour costs, could rise to 26 cents per pound, or $574 per tonne, an average of five responses show.

They are now at 23.7 cents, versus 11 cents in January.

In Europe, premiums were seen up by a third to $555, based on the average of two responses, the same pace as 2014.

In Asia, given relatively slower demand growth and more easily accessible supply, Major Japan Port (MJP) premiums may climb to $449, based on an average of five responses.

Japan is Asia's top aluminium importer and the premiums it pays PREM-ALUM-JP set the benchmark for the region. This year,MJP premiums have risen 64 percent to $420.
   
RALLY TO FADE IN LATE 2015
Aluminium premiums may fade later in 2015 as an overhaul of LME warehousing frees up supply and the rise in the all-in price to $2,700 per tonne or more spurs output, the survey showed.   

Premiums will also come under pressure as more frequent backwardation, when nearby prices trade above those further out, make using aluminium in financing deals less attractive. Any flurry of U.S. interest rate hikes would hurt too.

"The spreads will have a huge impact, it will depend on how big backwardations get and how often," a third respondent said. Financing deals made possible by cheap money after the global financial crisis in 2008 have locked millions of tonnes of aluminium away from the market. In such deals, a bank or trader buys aluminium and sells it forward at a profit, having locked in costs such as rent, insurance and finance.

The market has been tarnished by accusations of manipulation related to delivery backlogs at Goldman Sachs- and Glencore-owned warehouses in Detroit and Vlissingen,
respectively.

Most respondents said they or their customers intended to hedge premiums risk in 2015. CME runs a U.S. premiums contract, while the LME plans to launch one next year.
   
The following table lists estimates for premiums from the survey. The 11th participant did not give a number. 
 Respondent  All in price  MJP    Mid West  Europe  Unspecified
          1         $2700         $617 (28 cents)             
          2         $2700                                  $650
          3         $2950                      610            
          4         $2600             $600                    
          5         $2600         $551 (25 cents)             
          6    $2400-2500   $430                              
          7         $2800   $475                              
          8         $2600   $450                              
          9         $2600   $440      $550  $500 (duty-paid)
         10         $2600   $450      $550                    
 
 (Additional reporting by Yuka Obayashi in TOKYO and Harpreet
Bhal in KUALA LUMPUR; Editing by Himani Sarkar)

Copyright and Exemption Declaration :¢ÙAll articles, pictures and videos that are marked with "China Aluminum Network" on this website are copyright and belong to China Aluminium Network (www.alu.com.cn). When transshipment, any media, website or individual must list the source from "China Aluminium Network (www.alu.com.cn)". We seek legal actions against anyone that disobey this. ¢ÚArticles that marked as copy from others are for transferring more information to readers, do not represent or endorse their opinions or accuracy and reliability. When other media, website or individuals copy from our website, must keep the source. Anyone that changes the articles' sources will hold the responsibilities for copyright and law problems. We also seek legal actions against anyone that disobey this. ¢ÛIf any articles copied by our website concern the copyright and other problems, please contact us within one week.