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Aluminum premiums in Europe down as imports surge

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Mar. 27 2015, Updated 10:52 a.m. ET

Aluminum premiums in Europe

In the previous part of this series, we saw how aluminum premiums in the Midwest have dropped by ~10% already this year. In this part, we’ll analyze how aluminum premiums are playing out in Europe.

It’s important to note that aluminum premiums vary from region to region. However, premiums in various regions have a strong correlation to each other.

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Premiums down

The above chart shows the trend for aluminum premiums in Europe. Premiums have come down by more than a third so far in 2015. Lower aluminum premiums in Europe would negatively impact primary producers such as Glencore Plc. (GLNCY) and Alcoa (AA).

Aluminum premiums in Europe have just seen the biggest three-month fall for the last 17 years. According to Century Aluminum (CENX), the actual deals are happening even below these prices.

Century Aluminum has aluminum smelting plants in Iceland. It gets a major part of its revenues from Europe. It would be negatively impacted by lower aluminum premiums in Europe. Century Aluminum currently forms 3.99% of the SPDR S&P Metals and Mining ETF (XME). Reliance Steel & Aluminum (RS), and Allegheny Technologies (ATI) each form ~4% of XME.

Surging exports

One of the prime reasons for the fall in aluminum premiums in Europe is rising imports from China and Russia. In one of our recent series, we looked at how growing aluminum exports from China pose a challenge for the global aluminum industry.

Investors in aluminum plays should track China’s aluminum exports closely. In the next part, we’ll discuss the latest trends in Chinese aluminum exports.

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