March 2016 Raw Material TrendMarch 4, 2016
February’s Midwest Average was $0.79 per lb, up $.03 from January’s Midwest Average.
Also in other news:
LME aluminum contract spread backwardation
widens as warehouse rule kicks in
Tokyo—The backwardation in London Metal
Exchange aluminum contract spreads widened
for cash-to-three months during Asian
trading hours on March 1 as new LME warehouse
rules designed to increase minimum
load-out rates came into effect.
The LME cash-to-threes spread was
more than $20/mt in backwardation March 1,
widening from around $17/mt on February 29.
The backwardation on March 1 is the largest
seen, so far.
A Japanese trader attributed this to the
LME increasing the minimum daily load-out
rates from March 1, designed to reduce the
number of days’ wait to withdraw aluminum
from LME-approved warehouses to a target
maximum of 50 days, down from 144 days
recorded at a US warehouse in January.
LME warrants have been canceled ahead
of the warehouse rule change, leading some
market participants to believe warehoused
aluminum is not immediately available —
creating a steep $22-$23/mt backwardation
between cash to March 16 contracts, while
the cash-to-threes spread was $20-$21/mt
in backwardation, the trader said.
“The backwardation spread could change
after March 16 or be carried over beyond that
date; it is not predictable,” the trader added.
A second Japanese trader said he
saw the backwardation persisting for
several months as the LME was also
introducing a queue-based rent cap or
QBRC from May 1 that will cap the rent
charged for storing aluminum.
“It becomes more costly to keep
inventories. The immediate impact is that
people stop buying in the spot physical
market,” the second trader said.
He said he would not pay more than
$100/mt, plus LME cash, CIF Japan, for April loading
spot cargoes. “Even at $100/mt, I am
a bit hesitant,” he added.
The most recent spot deal Platts has
confirmed was at $110/mt, plus LME cash, CIF
Japan, for March loading.
A producer was offering $130 for second quarter
contract premiums, up from $110/mt
A third Japanese trader agreed the
backwardation was having an impact on
buyers. “It is difficult to make moves.
Numbers could be all over [the place],” he
said, adding spot deals could conclude in a
wide range of $100-$130/mt.
One Japanese consumer said his
company was consuming aluminum soon
after delivery, keeping stocks low, so he was
less concerned about the backwardation,
adding he saw spot April cargo tradeable at
$115-$120/mt plus LME cash CIF Japan.
A producer said he would not sell spot
cargoes below $110/mt, as US premiums
were holding at $192.50/mt, plus LME
cash, delivered Midwest, despite a recent
downtrend. He added: “$200/mt in the US
and $110/mt in Japan are fair numbers,”
Platts assessed spot Japanese import
premium at $109-$111/mt, plus LME cash, CIF
Japan, March 1, unchanged since February
24, in the absence of any deal, offer or bid
— Mayumi Watanabe