Asian and European aluminum premiums have moved lower, as traders and financial institutions were heard seeking the destocking of substantial tonnages at major warehousing locations and ports, creating a premium disaggregation in Asian and European markets between "trader prices" and offers from producers.
Some sources attributed the selloff from financial institutions to the expected interest rate rise from the Federal Reserve before the end of the year, despite the poor economic data released on Friday, reducing the Fed Fund probability of a rate hike in June or July.
Due to the sensitivity of aluminum carry trades profits to interest rate levels, as a result of the associated cost of financing, some investors were heard seeking to draw down physical long positions in favor of diversifying into other commodities less reactive to interest rate cycles.
"While a 25bp raise in interest rates may not immediately hit profitability in carry trades, it sends a signal that cheap financing may be going away," said a European trader.
Sources said that the recent sell-off had particularly impacted European markets, which have subsequently fallen. The Platts in-warehouse duty unpaid assessment stood at $64-$72/mt plus LME cash on Friday, down from $70-$80/mt two weeks ago, with recent trades heard as low as $58/mt.
One producer said that, despite sales of warehouse stocks heard below $70/mt plus LME cash in-warehouse Rotterdam, freshly smelted material could be sold at above this level.
In Asia, an aluminum producer said that there was a "tsunami" of aluminum stocks looking for new homes in the leadup to the settlement of the Q3 MJP contract in Japan. While Japanese stock levels remain relatively higher than normal, local inventories fell 5% from March to April.
Offers from global producers were already heard below the Q2 settlement price of $116/mt, with two producers offering at $110/mt and a third offering at $100/mt.
However, several bilateral Q3 negotiations were heard to have already settled at prices significantly below this level. One contract was heard done at $80/mt for 500 mt per month, with another at $83/mt.
"It's difficult to see how consumers would be willing to accept an MJP settlement at $20/mt above other contracts," said a second trader, with another source adding that it could be workable due to the entrenchment of the MJP amongst some Japanese consumers.
Another international producer said that the settlement of the Q3 MJP would impact premiums in Europe and the US, as a lower settlement would lead producers to send more volumes ex-Japan.
The Platts Japanese premium was assessed at $80-$90 plus LME cash CIF Japan on Friday, down from $91-$92/mt last week, on the back of lower premiums in both spot and quarterly contracts. The Korean assessment moved to $85-$90/mt from $95-$105/mt.
