Physical aluminium premiums in Europe have eased over the last month and will continue to do so as cash prices fall and the market begins to unwind, physical traders said Thursday.

Duty paid aluminium premiums have pushed as high as $240 a metric ton in the last couple of weeks, but have since eased to between $180/ton and $200/ton.

A premium is the amount paid to account for costs including insurance, freight, and shipping of aluminium to and from LME warehouses.

For the last few months aluminium futures traded on the London Metal Exchange have been in a backwardation, indicating a tight physical market.

As a result, prices for cash delivery have been higher than forward prices and in recent weeks market players have been putting metal into warehouses in order to take advantage of this, leading to a drop in premiums and a less tight market.

LME cash aluminium is trading at around $100/ton higher than the three months price.

Since the start of 2007, aluminium stocks held in LME warehouses have climbed roughly 15%, with an increase of roughly 24% in European warehouses alone.

"Business remains quiet because the backwardation is still there, but I'm optimistic business will pick up soon," said a Sweden-based trader.

Because metal is being attracted into warehouses, the physical market isn't considered tight.

"I don't see general physical tightness for the time being," said a Swiss-based aluminium trader, adding that only if aluminium demand stays strong due to European industrial activity will premiums tighten.

Senior aluminium analyst Jorge Vazquez of HARBOR Intelligence expects European premiums to continue lower due to forecasts of slowing European demand growth and increasing global aluminium supply growth. Vazquez also said the lingering possibility that E.U. aluminium duty will be cut in the near future could also help European aluminium premiums lower.

On Feb. 9, a proposal for an initial cut in the E.U.'s import duty to 3% from 6% with perhaps a further reduction to zero by Jan. 1, 2009, was blocked after a clear opposed minority emerged amongst some of the E.U. government representatives.

Previously, traders had been holding off from deliveries in anticipation of a cut to the duty.

However, a Swedish-based physical trader said the block in the duty no longer is an immediate focus for the industry as it's unlikely anything will happen this year.

Tomas Kucirek, head of unit for the E.U.'s tariff economics and customs duties division, said the future of the blocked proposal is now in the hands of the German E.U. presidency with no precise date or meeting scheduled in the near future.

Kucirek said he hoped some progress would come before the changeover in E.U. presidency by Portugal this summer. However, Germany isn't believed to be in a hurry to push the proposal forward, because they, along with France and Spain, oppose the duty cut as many smelters are located in those countries.