Russia's Rusal, the world's largest producer of primary aluminium, said it expects aluminium premiums paid over the London Metal Exchange price to keep rising over the next year and a half.
"There are different scenarios of market development, including a decline, but we do not expect this during the next 18 months. Premiums will continue to rise," Rusal first deputy COO Vladislav Soloviev told the Metal Bulletin aluminium conference in Moscow.
Rusal also said it expected a shift in aluminium supply contracts away from fixed cash premiums to a floating premium that would allow producers to lock in their margins.
"We expect to see a tendency to have floating premiums related to the underlying commodity contract, where producers are able to fix the margin over casthouse costs," Steve Hodgson, Rusal's director of international sales, said in a presentation at the conference.
Hodgson said cash premiums over prices on the London Metals Exchange (LME) had risen to 10% to 12% of underlying prices. In the past, Rusal had offered fixed premiums when the premium-to-price ratio was much lower.
This means Rusal could offer both fixed and floating premiums for its 2013 supply contracts discussions that start this week in Moscow and continue in LME week next month.
Most metals consumers negotiate term premium contracts with producers to secure supplies and then top up on the spot market which is subject to the volatilities of supply and demand.
Spot market premiums -- money paid over the benchmark (LME) cash price to secure physical metal -- have soared to record highs as vast amounts of aluminium are locked away in financing deals in places like the Dutch port of Vlissingen, the Malaysian port Johor and Detroit in the US, resulting in queues of up to a year to collect metal.
Aluminium premiums in Europe have been on a steady uptrend since the beginning of the year. Duty-paid physical aluminium in Rotterdam was quoted at a fresh record high of $270 to 290, rising from $260 to 280 at the end of August.
Duty unpaid was quoted at $210 to $230, against $210 to $220 previously.
Three-month aluminium prices touched a three-year low at $1 827.25 a ton in mid-August, after falling more than 10% in the second quarter.