Market and product

Players in the US primary aluminum market are seeing more discounting as the backwardation on the London Metal exchange and inventory level checks have led some sellers to entice buyers with cheaper material.

However, deals are still accomplished at or over the Platts Midwest price, which has led premiums to hold steady at current levels. The Platts US aluminum premium remained unchanged this week at 10.9 cents/lb plus LME cash, delivered Midwest.

A mill consumer said he thought the market was softer than current levels, being offered "30-40 points lower than where the premium was three weeks ago [11 cents/lb]" He said he was getting calls all the time from sellers who were offering metal to him at discounted levels.

The consumer said he was baffled by the higher-premium deals heard in the spot market and thought it was not indicative of the market as a whole. "My guess is that some of the big boys don't buy as much and the smaller guys would not be as in tune with the market," he said.

Of 2013, he said he was being offered discounts on a floating basis at 0.75 cents/lb below Platts. Another mill consumer said he was getting ready to buy some material and had a broker call him with an offer to move metal before the end of the year.

He said he most recently received metal at 11.5 cents into the South, but was offered 11 cents this week "to buy some metal to get off their floor by the end of the year. I'm going to let other brokers know that and wrangle it across the board. Other players are probably in the same situation."

He said his inventory levels were short because business was soft and there was plenty of metal out there should he need it. "I think the run-up in the market is also hurting business in general," he added. "So unless you've got to buy metal, I don't think people are anxious for it."

One billet remelter said he was hearing discounting going on, but had not tried to purchase any spot to test the market. However, he did say he received discounts for 2013 contracts.

A sheet maker said he had to carry some of his 2012 contract volumes into 2013 in order to reduce inventory. "There's low demand for the balance of this year and [because of the carryover] early next year as well," the sheet maker said.

Some traders admitted bargain selling was occurring and, even if they were not doing it, they knew it was happening nonetheless. "It's year-end; you will get the year-end dump," said a broker who was "quoting business but not going to give material away for the sake of giving it away."

A trader who sold at 10.75 cents this week, and was also doing deals basis Platts minus half a cent on a floating basis to December, said traders were generally long. "If they have to move metal, they are selling at a discount."

He said it was normal to see discounting right now because it was the end of the year and there was a backwardation still present. "Nothing ever changes," he said. "It is what it is."He said he was hearing premiums at 10.5-10.75, and it was all small-volume deals. "They [consumers] know there are deals now. It's like Christmas time; you shop around and see who has the best deal," he said.

However, sellers in the market said fundamentals were still strong and thought the backwardation would dissipate by the beginning of January. Some of them said they had no reason to sell in the current market, in the last couple weeks of the year, instead, choosing to hold their metal until next month when they saw premiums climbing back up.

A trader who sold a few loads of P0610 at a half a cent premium to P1020 said he had a good amount of metal. "Do I think that's the market?" he asked of his specialty-grade deals to a trader. "I don't know. But it's a data point. And I can do it. There's no reason to give [metal] away because we know what is going to happen as soon as the calendar turns in January — boom, we're off to the races again."

A producer said he sold a small load of P1020 at Platts flat earlier in the week and thought premiums would remain stable until the end of the year. Another producer said he was running short on inventory and had not sold any P1020 this week.

He thought the backwardation would go away next week as people were winding down at the end of the year.

"I think once we get past New Year and holidays people will see a full contango and will look to move metal," he said. "[Consumers] may find they are needing it quickly and they will be restocking inventories for January."

The producer also pointed to the barge situation, saying there were no barges to be found, which would lead people to use truck or rail to ship metal. He said the premium may then be pushed up because of rail/truck rates.