Yahoo Finance US Midwest Aluminum Premiums Fall to 15-Month Low
Why Recent Aluminum Industry Indicators Are Concerning Investors
US Midwest aluminum premiums
In the previous part, we discussed the latest trend in China’s aluminum exports. In this part of the series, we’ll look at physical aluminum premiums.
US Midwest aluminum premiums fell to $0.1125 per pound on May 14, the lowest level since December 2013. An aluminum premium is a surcharge that aluminum consumers must pay on top of the prevailing prices to take the delivery of metal from the warehouses. Aluminum premiums more than doubled in 2014.
Premiums fall
The previous chart shows the latest trend in aluminum prices. As you can see, they have corrected sharply, falling more than 50% this year. Aluminum premiums have registered a decline in each month of the current year. Lower aluminum premiums are negative for aluminum producers like BHP Billiton (BHP).
Europe premiums
Aluminum premiums in Europe have seen an even bigger decline this year. The average duty unpaid premium in Europe has declined ~75% this year. Norsk Hydro (NHYDY), which operates in Europe, would be negatively impacted by the weakness in European aluminum premiums.
Constellium (CSTM), however, stands to gain from the recent decline in aluminum premiums. CSTM is not a primary aluminum producer. It buys aluminum from primary producers to manufacture fabricated products. Last year, its profitability was negatively impacted as it faced difficulty in passing the aluminum premiums to its customers.
Kaiser Aluminum (KALU) would also benefit from lower aluminum premiums. It currently forms 3.5% of the SPDR S&P Metals and Mining ETF (XME).
Meanwhile, aluminum prices have also corrected from their 2015 highs. In the next part, we’ll analyze the latest movement in aluminum prices.
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