Aluminum Premiums Seen by Commerzbank at ‘Unimaginable Highs’

The additional costs paid by buyers for delivery of aluminum “soared to unimaginable highs” and are expected to rise higher amid demand from consumers and financiers, according to Commerzbank AG.

The premium for delivery in the U.S. Midwest surged to 19 cents a pound in the U.S. yesterday, Commerzbank said, citing Platts, a market data supplier. That compares with 17 cents on Jan. 7, according to Harbor Intelligence, an Austin, Texas-based researcher. The European surcharges also rose “significantly,” boosted by increases in the U.S., Commerzbank said.

“According to trading sources, numerous financing transactions have become attractive,” Daniel Briesemann, an analyst at Commerzbank in Frankfurt, said in a report today. “What is more, robust physical demand from end consumers is no doubt meeting at present with low available supply.”

The metal used in packaging and cars fell 13 percent last year, the second-worst performer among six main industrial metals traded on the London Metal Exchange. Global demand for aluminum may exceed production by 390,000 metric tons this year, the first deficit in seven years, Macquarie Group Ltd. said Jan. 9, as demand improves and output is curbed amid unplanned closures and bankruptcies.

Deutsche Bank AG forecast a 5.6 percent increase in global use of the metal this year in a report today, with China’s demand growth at 9.5 percent.

“Almost all the main consuming sectors are contributing to higher demand, i.e. the automotive industry, construction, transport,” Commerzbank’s Briesemann said.

Financing deals typically involve buying metal for nearby delivery while making a forward sale to benefit from a market in contango, when prices rise for future delivery. The premium is added to the price of aluminum on the LME.

Producer Cutbacks

European premiums, which include import duty into the European Union, reached $310 a ton at the end of last week, Briesemann said. The way that premiums are developing in the U.S. suggests that the charges will continue to rise in the European market, he said.

Producer cutbacks in the U.S. and Russia tightened the physical market leading to a rebound in premiums even as the LME introduced stricter delivery rules from its warehouses, Deutsche Bank said. The LME, which regulates a network of more than 700 storage facilities, will introduce the new rules tackling backlogs at some locations in April.

“The tight physical market in Europe and the U.S. is likely to keep premiums at current levels and these may even drift higher,” Grant Sporre, an analyst at Deutsche Bank in London, said in a report today. “We believe the industry will announce further curtailments.”

Aluminum for delivery in three months on the LME fell 0.6 percent to $1,768.25 a ton by 2:54 p.m.

To contact the reporter on this story: Agnieszka Troszkiewicz in London at atroszkiewic@bloomberg.net

To contact the editor responsible for this story: Claudia Carpenter at ccarpenter2@bloomberg.net

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