Winter Park, Florida 22/04/2016 - US aluminium premiums have wobbled lower this week amid an atypical lack of springtime spot demand.
The Midwest P1020 ingot premium this week slipped to 7.75-8.25 cents per pound from 8.0-8.5 cents, with producers and consumers both acknowledging that it is a buyers' market for now.
"Business has been very slow for the past two weeks. So much so that we're actually starting to move onto 2017 contracts. We think that premiums will stay pretty steady at these lower levels for the rest of the year so we're starting to send up some balloons for next year," one producer source told FastMarkets.
"Spot deals have evaporated lately… we've seen a slight weakening in our orders, nothing significant or major, but we are holding a lot of raw material," a billet producer said, adding that he is still hopeful that a "spring surge" will start soon.
Nevertheless, the lack of April spot business has been disconcerting, several source said. This is usually a seasonally strong period - plants should be running at full steam for the next few months before the summer holidays.
"There's starting to be a feeling that things aren't as strong as they should be. There are even rumours that some plants are cutting back on hours. [A good-sized casthouse in the Midwest] just went down to 32 hours per week [from 40]," a producer source said.
Another issue has been the recent run-up in the underlying London Metal Exchange price, which was last at $1,662 per tonne, up sharply from $1,550 at the start of the week.
"We're not seeing a rush in new sales [to go along with this rally]. I think that's because people are looking at their order books and understand that there's not a good reason for higher prices - so they're just fine waiting [for a correction]," a producer said.
In broader macroeconomic data, Markit Economics' preliminary manufacturing purchasing manager's index (PMI) for April came in at 50.8, the lowest reading since September 2009.
"US factories reported their worst month for just over six-and-a-half years in April, dashing hopes that first-quarter weakness will prove temporary," Chris Williamson, chief economist at Markit, said.
"With prior months' survey data pointing to annualized GDP growth of just 0.7 percent in the first quarter, the deteriorating performance of manufacturing suggests that growth could weaken closer towards stagnation in the second quarter," Williamson added.
Meanwhile, in the futures markets, the forward curve for CME Group's Aluminum MW US Transaction Premium (AUP) contract retuned to a backwardation on Thursday, indicating that participants envision lower premiums in the second half of the year.
Following a 564-lot or 14,100-tonne trade yesterday, the April AUP contract is now at 7.917 cents per pound while May until March 2017 are at 7.775 cents. Total open interest now stands at 25,960 lots or 724,000 tonnes.
(Editing by Mark Shaw)