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

for Q1.

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,”

he added.

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

being reported.

Mayumi Watanabe

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    Jackson, MI 49203

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