By Perrine Faye and Vicky Chen
London 30/03/2015 - Primary foundry alloy premiums have dropped further, breaking below $700 per tonne in Europe because of a supply glut and downside pressure from a weakening ingot market and a falling euro.
Spot premiums for wheel alloy silicon 7 were last quoted at $650-690 per tonne delivered and duty paid over LME cash prices with 30-day payment terms, down from $750-790 in early February and as high as $850 at the start of the year.
"There is a massive drop in premiums from last month’s premiums and from long-term contract premiums," a trader in Europe said.
The rates were also much lower than premiums for 2015 annual contracts, which are widely believed to have been booked at $850-900 per tonne.
"Some of our customers said that they are seeing a 30-40-percent discount on the benchmark price," a producing source in Europe said.
Still, premiums have been under pressure while the European market remains well supplied. Material with unusual origins - from Malaysia or India, for example - is also available.
The lower premiums are following the trend of primary ingots premiums. Premiums for P1020 have dropped to $305-320 per tonne over LME cash prices on a duty-paid in-warehouse basis in Rotterdam, the lowest since December 2013.
For wheel alloy silicon 11, the upcharge on premiums was stable at $20-25 per tonne on top of the silicon 7 premium.
A weaker euro was another key factor - most producers offer settlement in the single currency, which has fallen around six percent against the dollar over the past month, which equates to lower rates when converted into the dollar, several sources noted.
On the demand side, however, most market participants are more optimistic than they were for the first quarter - car sales in Europe are recovering and the use of aluminium in vehicles in place of steel is also growing.
Sales of new cars in the EU increased 7.3 percent to 924,440 vehicles in February from the same month of last year, according to the European Automobile Manufacturers; Association (ACEA). This was the 18th consecutive monthly increase.
"Demand is the pretty strong but, with supply, a lot of people switched from P1020 to value-added products so there’s more available this year," a second trader said.
"Automotive is very strong, sheets and plates very strong. I think it's a case of more aluminium that's being used in the body of the car whereas in the wheel it's always been the case," the source added.
Wheel alloys account for 50 percent of the foundry alloy market; silicon 7 represents 85 percent of the wheel alloy market.
(Additional reporting by Archie Hunter and Nina Lu, edited by Mark Shaw)