U.S. aluminum premiums rise as Alcoa cutbacks signal turnaround

By Luc Cohen
NEW YORK, Nov 3 (Reuters) - U.S. aluminum premiums have
jumped to their highest in three months after Alcoa (N:AA) AA.N
announced plans to idle the bulk of its U.S. smelting capacity,
stirring speculation among traders that the market may have
turned a corner.
Spot CME Midwest premiums AUPc1 rose to 8 cents per lb on
Monday for the biggest one-day jump in months as traders
scrambled to secure metal in anticipation of lower domestic
output even as global inventories are plentiful. Worries about
waning demand from China, the world's top producer, also linger.
Premiums were firm around 7.9 cents on Tuesday.
On Monday, one of the world's leading aluminum producers
announced it would curtail production at three of its four U.S.
smelters, slashing annual capacity by 500,000 tonnes.
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The rise in surcharges, paid on top of the benchmark London
Metal Exchange price CMAL3 , will offer some comfort to traders
and producers hit by the unprecedented plunge in premiums
earlier in the year as rising Chinese exports and the release of
aluminum from financing deals in warehouses flooded the market.
But it is far cry from the 24 cents seen in January, and LME
prices remain close to or below breakeven for most producers.
Still, combined with planned cuts by Century Aluminum
CENX.O , the curtailments will remove more than 900,000 tonnes
of capacity from the market.
That is a whopping 20 percent of U.S. consumption that will
need to be replaced by imported metal in the future, increasing
shipping costs and boosting premiums.
"We've seen a bottom in premiums, and the trend is now going
to be up over the next several months," said Lloyd O'Carroll,
senior analyst with CRU Group in Richmond, Virginia.
Spot activity was quiet as end-users draw down existing
inventories near year-end, but spot market premiums may rise
further in the new year, traders said.
In addition to growing imports of Chinese semi-fabricated
products, aluminum shipments from the Middle East, where Alcoa
runs a massive 760,000 tonne-per year smelter in Saudi Arabia,
have ballooned this year.
Saudi Arabia shipped 66,290 tonnes of aluminum to the United
States in the year through August, up from 2,700 tonnes in the
same period the prior year, U.S. government data show. Exports
from the United Arab Emirates and Bahrain also grew
substantially.
It costs 9-12 cents a pound to ship aluminum from the
Persian Gulf, compared with 4-5 cents a pound from Canada, the
United States' largest supplier, O'Carroll said.