Winter Park, Florida 11/01/2016 - The forward curve for CME Group's Aluminum MW US Transaction Premium (AUP) contract remained backwardated last week - market participants extended their bets on lower premiums.
The January AUP contract ended last week at 8.387 cents per pound while February through December each settled at 8.25 cents. The January settlement price was down 0.26 cents or 3.0 percent week-on-week; February was down 0.4 cents or 4.6 percent; and March and April were down 0.25 cents or 2.9 percent, according to CME data.
The contracts for the June to December months each settled at 8.25 cents, unmoved week-on-week.
Open interest in AUP rose 1,868 lots or 8.5 percent week-on-week to stand at 23,876 lots. That equates to 596,900 tonnes of aluminium.
Several sources suggested last week that premiums might struggle towards the end of the first quarter. End-market consumers, in particular, are concerned that demand might stagnate following the Federal Reserve's decision to raise interest rates for the first time since 2006.
Also, this year’s El Niño, among the strongest on record, has brought drier-than-average conditions and warm temperatures across the northern tier of the country, including the industrial Great Lakes and Ohio Valley regions.
Temperate weather makes it easier to collect and deliver scrap metal to recyclers. It also allows Canadian primary smelters and importers from other regions to make on-time deliveries.
FastMarkets' spot Midwest delivered duty-unpaid premium last week fell to 8.5-9.0 cents per pound from 8.9-9.25 cents and is off of the six-month high of 9.25-9.75 cents set late in November.
Still, it is possible that spot premiums might rise this week and the AUP forward curve could flatten or even move into a contango following the announcement of new production cuts.
Alcoa announced on Thursday that it will permanently close its Warrick Operations primary aluminium smelter in Evansville, Indiana, by the end of the first quarter. The smelter has a capacity of 269,000 tonnes and is closing due to low aluminium prices.
Noranda Aluminum Holding Corp, meanwhile, has idled two of the three potlines at its aluminium smelter in New Madrid, Missouri, following an electrical supply circuit failure, the company said in a statement.
The circuit failure occurred last Thursday afternoon; the company is assessing the incident to determine its root cause. The third potline was not directly affected and production in that line has continued.
Noranda's upstream division includes a 263,000-tonne-per-year primary aluminium smelter near New Madrid, Missouri. The review of the incident and its impact on operations are in the early stages so the company has not established a timeline for resuming production in the two idled potlines, which can produce a combined 175,000 tonnes per year.
(Editing by Mark Shaw)