U.S. aluminum premiums jump on bullish outlook

Tue Feb 7, 2012 8:48pm GMT

By Chris Kelly

NEW YORK Feb 7 (Reuters) - Midwest spot market aluminum premiums for prompt delivery were up at the start of the year, underpinned by a healthier demand outlook and persistent cash-and-carry deals at the warehouses that have choked off spot metal flows, sources told Reuters.

A series of output cuts last month at various North American smelters further squeezed the already tight market at the start of the year.

With metal scarce, many consumers are in the spot market looking to rebuild depleted inventories ahead of what is expected to be a good year across many aluminum manufacturing industries.

"It's the cut-backs in Canada and the lack of import due to the long-term cash-and-carry deals. In Detroit, you cannot get metal out of it for the first six months of the year ... that's causing an immediate problem," said a physical dealer, who quoted the Midwest premium at 8 cents to 9 cents per lb.

In December, the premium was quoted at 7.4 cents per lb.

The Midwest aluminum premium is calculated by factoring in freight and handling costs when shipping aluminum from London Metal Exchange-monitored warehouses to the Midwest.

"I don't know anyone who's offering lower than 8 cents. We are offering much higher because we can see that by March it's going to be a real problem."

That problem worsened after last week's cancellation of 50,000 tonnes of aluminum warrants in Detroit. Now more than 450,000 tonnes are sitting in a months-long queue, making end users increasingly impatient, and its owner, Goldman Sachs , increasingly profitable.   Continued...

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