Reuters reported that premiums for physical aluminum are rising in Europe as much of the record high inventory in London Metal Exchange warehouses is tied up in financing deals that are not likely to suddenly be unwound. Also pushing them up, Alcoa is planning to idle nearly 200,000 tonnes of capacity in Italy while trading house Glencore is said to be holding more than a million tonnes of output it bought from UC RUSAL earlier this year. This coupled with the financing deals which have seen banks buying cash aluminum on the LME and selling it 12 months forward at a profit have left traders competing for the little material left at producer warehouses. A Europe based trader said that "I've been snooping around to see if I can get some and there's nothing around. You have to go to the producer basically and pay whatever they ask." Premiums are the charges paid by the consumer on top of the LME cash price MCU0 to cover the costs of shipping and delivering metal. They are currently at around USD 90 to USD 100 for duty paid aluminum in Rotterdam compared with USD 60 to USD 70 in September. LME aluminum inventories are near record levels of 4.6 million tonnes but about 70% of that stock around 3.15 million tonnes is tied up in financing deals until May 2010. The deals came about because producers needed cash and banks found it profitable to take the stock off their hands in May, when 3 month aluminum prices were about USD 150 below May 2010 futures contracts. Another Europe based trader said that the deals will carry on as long as rates remain low and banks aren't forced to lend money. The deals have created an artificial aluminum consumer. Aluminum is becoming like gold it's sitting in vaults, you can't use it but its got perceived value. Industry has got to compete with financing boys for material.

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