Winter Park, Florida 13/06/2016 - The CME Group's aluminium premium contracts returned to a backwardation last week after months of stability as participants placed bearish bets following a pessimistic conference in Chicago.
The CME Aluminum MW US Transaction Premium (AUP) contract saw 2,847 lots (71,175 tonnes) traded on Friday. The June AUP contract was unchanged at 7.764 cents per pound but there were big pullbacks in every month from July 2016 to December 2018.
The July through December contracts are now at 7.25 cents, a drop of 0.25 cents or 3.3 percent week-on-week, while every month in 2017 is around 7.3 cents, down 2.6 percent.
AUP open interest has jumped to a new record high at 29,029 lots or 725,725 tonnes, an increase of 2,634 lots or about 10 percent from the prior week, according to CME data.
Meanwhile, FastMarkets' spot US Midwest aluminium premium last week was in a wide range of 7.25-7.9 cents per pound, indicating that market is entering a period of increased volatility.
It's a similar story with the CME's Aluminum Japan Premium Futures (MJP) contract, where 480 lots or 12,000 tonnes traded last Tuesday. Open interest climbed to 2,559 lots or 63,975 tonnes, a 20-percent week-on-week increase.
The forward curve for CME MJP is also backwardated, with the June contract month at $93.27 per tonne, July through December at $84 and all of 2017 at $85.
The main catalyst for the downward movement in forward premiums was probably the Harbor Aluminum conference that was held last week in Chicago. Analysts there expressed concerns about increasing supply, soft Chinese demand and high inventories.
"Following a withering string of bearish speeches on the first morning, delegates staggered into the mid-day break, more in need of a stiff drink as opposed to the coffee and cake on offer," INTL FCStone's Edward Meir noted about Harbor.
"One person told us later that this this was the most depressing aluminium conference he has ever attended - and he was a consumer no less," Meir added.
Additionally, beer maker SAB Miller announced at the conference that it will now use a combination of the CME's AUP index and the Midwest premium number put out by Harbor Intelligence for buying its metals, Meir said.
(Additional reporting by Archie Hunter, editing by Mark Shaw)