Premiums up, stocks down; is the aluminum market tightening? – by Andy Home (Reuters U.S. – March 31, 2017)

LONDON – Japanese aluminum buyers will pay a premium for their second-quarter metal deliveries of $128 per tonne over the London Metal Exchange (LME) cash price. This represents a sharp jump from the $95 negotiated for first-quarter shipments. It is also the highest premium since the second quarter of 2015, when the aluminum premium bubble was rapidly deflating.

Meanwhile LME stocks of aluminum sank below the 2 million-tonne level earlier this month and at a current 1,886,400 tonnes are at their lowest since December 2008. Excluding the metal that is awaiting load-out, the on-warrant total of 1,003,275 tonnes is the lowest since May 2008.

The LME outright price is trading just shy of the $2,000 per tonne level for the first time since early 2015. It’s a combination that in most commodity markets would indicate a tightening in availability.

But this is aluminum, a market where nothing is ever quite as it seems. China, after all, is still lifting production and everyone knows that there are huge off-market stocks. So just how tight is the aluminum market? Japan’s quarterly premiums, which act as a benchmark across much of the Asian region, are in part a reflection of local market conditions. It’s worth noting that regional supply has taken two hits recently.

The Portland smelter in Australia was knocked out by a power cut last December and is expected to take six months to fully recover. The Boyne smelter, also in Australia, is cutting output by around 14 percent due to rising power prices.

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