Car frames, soda cans and bicycles are becoming less expensive to produce as manufacturers pay the smallest premiums in almost three years to secure aluminum.
The surcharge added to the cost of metal for immediate delivery on the London Metal Exchange will probably fall as much as 46 percent in the U.S. and Europe by the end of 2015, according to Harbor Aluminum Intelligence. Premiums in Europe have slumped to the lowest in 34 months, down from a record in November, data from the Austin, Texas-based researcher show.
Aluminum consumers including beermaker MillerCoors LLC and fabricator Novelis Inc. had complained that some warehouse companies were creating backlogs and inflating their costs. Premiums are now falling as wait times shrink and storage companies no longer compete with consumers for metal, according to Harbor. China is also exporting record amounts of aluminum products.
“I haven’t found a single consumer that is not believing that the bubble has burst,” Jorge Vazquez, managing director of Harbor, said by phone on Wednesday. “Lower premiums are good news.”
Supplies are ample and companies that use the metal have been withholding purchases in anticipation of further declines, according to Vazquez.
Aluminum for immediate delivery fell 2.6 percent since the end of January to $1,805.50 a metric ton. It traded at a $10-a-ton premium to the LME’s three-month contract on Thursday. The backwardation, in which later contracts are cheaper than for nearby dates, makes it more costly for traders to store metal and suppliers may be forced to deliver to warehouses tracked by the LME.
“With the backwardation that we have, there is no buying interest,” Vazquez said. “We are very close to the point in which suppliers may start shipping metal to warehouses again.”
The metal for delivery in three months fell 1.6 percent to $1,777.50 a ton by 2:32 p.m. in London, extending this year’s decline to 4 percent.
The LME, which oversees a network of about 650 warehouses, has sought to ease wait times over the past year and limit practices that encouraged metal to be hoarded in storage.
Warehouse companies are no longer able to pay high incentives to convince aluminum owners to deliver the metal to their facilities. The incentive is about $60 to $80 a ton, down from more than $350 a ton in 2013, according to Harbor data.
Queues last month were 436 days in Detroit and 510 at the Dutch port of Vlissingen, the biggest aluminum repositories, down from as long as 748 days in April 2014, exchange data show.
In Europe, the aluminum premium slumped 59 percent in the past five months, reaching a range of $160 to $185 a ton, according to Harbor. Excluding the import duty in the EU, the surcharge may reach $100 a ton by the end of 2015 and then $80, the firm estimates.
The U.S. premium is at 17.5 cents a pound. The surcharge in the U.S. Midwest will reach 12 cents a pound by the end of this year and 7 cents a year later, Harbor data show.