Rusal shifts to charging monthly premiums
Rusal, the biggest aluminium producer, is setting premiums for its metal on a monthly basis instead of annually as in previous years to more closely link the payments it gets to market movements.
"Rusal switched more than half of its contracts to floating premiums starting from this year," strategy director Oleg Mukhamedshin said.
Customers should also hedge against price gains or "they may miss the right moment to hedge and lose money", he said.
European premiums, which buyers pay on top of London Metal Exchange prices to get supplies of the metal straight away, have more than doubled to US$217.50 a tonne, excluding duty, from the start of last year. Aluminium gained 5 per cent in the same period.
Rusal saw the market in balance this year, Mukhamedshin said. "Premiums won't be increasing significantly this year but they won't be declining either," he said.
Rusal sets monthly rates based on a combination of average LME prices and average prices plus the premium from the prior month.
While banks have begun to offer aluminium-premium hedges, Mukhamedshin was sceptical of their value because of a lack of demand from producers to take the other side of the contracts.
"If a bank offers to hedge a premium for a client, at the other side it should have a producer willing to hedge the premium, too," he said. "But producers just don't need it. The aluminium price for any producer is a combination of the LME price with a premium."
Consumers should instead maintain hedged long-aluminium positions, Mukhamedshin said. "As a producer we are safe but for our clients there is a potential danger," given the large levels of stockpiles and investment demand, which might result in an increase in prices, he said.
Aluminium will rise 3.2 per cent to average US$2,119 a tonne this year, according to the median estimate of 19 analysts.
Rusal saw the metal's price reaching US$2,300 by the end of the year, Interfax reported a senior company official as saying last month. Rusal's forecast for balanced supply this year also contrasts with estimates of a surplus from banks including Barclays, which expects an excess of 1.8 million tonnes.