Aluminum premiums hit 3 year high

While there are a number of reasons why the price of aluminum in the U.S. has shot up so dramatically, if the hefty premiums paid by buyers are an indication of the strong underlying strength of the demand, in most probability, it would be safe to assume that U.S. President Donald Trump is counting on it to sail through his proposed 10% import duty on aluminum.

With buyers increasing their efforts to secure sizable quantities of aluminum and steel before U.S. President Donald Trump’s flagged 10% import duty comes into force, premiums for the metals have shot to their near-3 year high.

Premiums paid by buyers, on top of exchange prices to cover the cost of delivery and insurance is a sign of the strength of demand for these metals.

On Thursday, spot premiums for Comex aluminum had jumped to $375 a tonne (17 cents a pound), before settling at 15.2 cents, up by 12%; the price is also the highest since April 2015.

“I would assume that premiums have jumped because people are saying that it will be harder to get aluminum,” said analyst Lachlan Shaw of UBS in Melbourne. “It seems a bit of a kneejerk over-reaction to me. There will still be metal available, it will just cost more.”

Another factor which increased aluminum premium prices was the lock-out declared by union workers at an Alcoa smelter in Quebec; as a result output levels have dropped by about two-thirds, said a source at a global producer.

According to traders and analysts, premiums are likely to remain at elevated levels, but are likely to dip in the short-term.

The proposed import duty of 10% on aluminum is likely to raise the cost of the average car body to $365 from $330.

As per Australia’s CBA bank, with the imposition of this steep tariff, the U.S. hopes to add around 670,000 tonnes of domestic aluminum output, which would effectively displace about 1% of global aluminum production.

“We expect aluminum markets will be able to absorb the impact quite comfortably,” said CBA in a report.

As per U.S. government statistics, the country imported nearly 7 million tonnes of crude, semi-manufactured and aluminum scrap, from mostly China, Russia, Canada, and the UAE.

As per a source at a metals warehousing company in Singapore, since December a few traders had been boosting their metal shipments to the U.S. hoping to cash in on the tariffs.

“A lot of people picked this well ahead, and they reacted early on,” said the source.“If it hasn’t sailed before the end of January it’s going to miss the window.”

Incidentally, Comex aluminum stocks have shot up by more than 50% in 2018 to 65,327 tonnes.

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