The spot US Midwest aluminum premium surged by 26.3% over January 2-31, on the back of cuts in Canadian supplies, local transportation constraints, and uncertainty over results of the administration's Section 232 investigation on whether aluminum imports were harming US national security.
S&P Global Platts assessed the US Midwest premium at 12 cents/lb delivered on Wednesday, up from 9.5 cents/lb on January 2.
The LME February/March timespread was in backwardation of $4-$9.5/mt in January, according to LME data. The premiums to LME typically weaken when the market structure is backwardated, but this time there was little impact on the premiums as the US had strong appetite for aluminum, though this was not the case in other markets.
Aluminum premiums in other markets rose, tracking the US, but at varied levels reflecting domestic stock levels, supply and demand conditions, as well as market participants' exposure to the LME spreads.
The CIF Japan spot premium jumped 12% over January, the European duty-unpaid premium rose 8.1% and Brazil's CIF duty-unpaid premium edged up 3%.
The Japanese premium, which rose to $98.50-$110/mt CIF on January 31 from $90-$96/mt on January 4, was the most affected by the US premiums as Russian, Australian, Middle Eastern and South African production was shipped to the US rather than to Japan, which saw tight stocks especially in the Yokohama port area.
It was, however, not a continuous rise over January.
The CIF Japan premium averaged at $93/mt in the week of January 4-5, fell to $91.875/mt over January 9-12, rose to $96.20/mt over January 15-19, averaged at $102/mt over January 22-26, and at $104.17/mt over January 29-31.
Downward pressure came from the LME spreads that caused some Japanese consumers to postpone buying.
Meanwhile, Shanghai Futures Exchange prices hovering below LME led to increased Chinese exports to Asia, replacing P1020 demand in Southeast Asia and South Korea. Suppliers also sought to sell in Japan but at lower premiums.
SLOWER RISE IN EUROPEAN ALUMINUM PREMIUMS
The European duty-unpaid premium was up 8.1% to $95-$105/mt in-warehouse Rotterdam on January 31, from $90-$95/mt on January 2, according to Platts data.
European consumers were trying to take advantage of their contractual agreement clauses, instead of going to the spot market on the back of the upward trend on LME prices and physical premiums.
Total aluminum stocks in LME-registered warehouses of Rotterdam and Vlissingen have fallen around 3.8% since the beginning of the year, however, Europe still accounts for 46% of total LME stocks.
This indicates that Europe may still have metal to consume, according to an international market source, and that could explain the slower move up in premiums.
That, however, could change if the Atlantic arbitrage window for movements from Europe to the US becomes wider and more profitable to market participants.
Since last week, there were reports of an uplift in the interest to ship metal from Rotterdam to the US, but arbitrage opportunities were not open to everyone.
COMPETITIVE DOMESTIC LEVELS IN BRAZIL PUT LID ON IMPORT PREMIUMS
The Platts CIF Brazil premium was up 3% to $170/mt when it was last assessed on January 26, up from $165/mt CIF on January 5.
Aggressive domestic premiums combined with prevailing poor demand were preventing P1020 premiums from rising in Brazil -- especially on the import market despite the strong adoption of the Platts US Midwest Transaction premium in Brazilian term contracts.
Brazilian suppliers progressively reduced their domestic offers since mid-2016 in an attempt to boost consumption, which has been depressed due to the economic recession that started in 2015 and that is finally starting to cease.
"The ceiling is being imposed by domestic producers right now," a trader said. Also, "CIF Brazil [spot prices have] no direct link to the US Midwest, but with Europe [since most of the imported units are shipped from Rotterdam]," he added, stressing however that European duty-unpaid premiums in-warehouse rose to some $105/mt from around $90/mt over January.
"I would increase my CIF Brazil offers by the same proportion, to $180/mt CIF from the $165/mt from December," he said of January premiums.
Despite the skepticism over a possible further increase in CIF Brazil premiums in the coming weeks, domestic offers may be about to jump, opening room for import offers to follow the uptrend.
Most of the domestic term contracts are tied up to Platts US Midwest premiums, almost always based on the average of the delivery's previous month. As February starts, suppliers will start to apply a 10.784 cents/lb premium as the US Midwest value in their contracts, instead of 9.447 cents/lb last month. This same method is also widely used by suppliers to calculate their spot offers.
