London (Platts)--9Nov2012/702 am EST/1202 GMT

The European physical aluminum market has seen premiums for duty-unpaid material edge up this week as the large quantity of material in finance deals continues to cause warehouse queues and tightness in the market.

"It's totally artificial and a strange situation," one European trader said of the current market.

He said material stored in warehouse was the reason behind the higher premiums and that physical demand was still not very strong.

A consumer said he had not bought any material from the spot market in the past week and was still looking to negotiate long-term contracts for next year.

"We are still fighting with the premiums and people are still hesitating on whether to book fixed or floating premiums for next year," the consumer said.

He said the market had seen little activity since LME Week in mid-October.

"People are just discussing business for next year," he said. LME global aluminum warehouse stocks stood at 5,095,775 mt on Friday. A second trader said the spot market had been very slow and was seeing premiums around $295/mt for duty-paid material and around $225/mt for duty-unpaid material plus LME cash.

"There is hardly any demand at the moment," he said.

A producer also said he had not done any business in the last week. "We haven't done anything -- it's very quiet but that's normal for the fourth quarter," he said.

The producer said he had been focusing on finalizing long-term contracts and that he had secured premiums just below $300/mt for contracts in the first quarter and the first half of next year.

A third trader said premiums for duty-paid were as high as $300-305/mt plus LME cash. However, this range was disputed by other sources who spoke to Platts.

"I wouldn't put out premiums as high as $300/mt," the second trader said. "That's not where the real market is, but premiums will probably soon go up. I think they should go up at some point.

The third trader said premiums just above the current spot market range had been achieved for long-term contracts next year.

"There isn't much spot business at the moment," the third trader said. "People are booking material for next year and fixing premiums now to avoid further increases in the new year. The focus is on the long-term contracts for 2013."

Platts premium assessment for duty-paid Good Western was unchanged this week at $280-295/mt, in-warehouse Rotterdam plus LME cash.

The premium assessment for duty-unpaid Good Western was up at $225-235/mt Thursday from $215-225/mt last week plus LME cash, in-warehouse Rotterdam, as was the premium for A7E at $225-235/mt from $215-225/mt plus LME cash, duty-unpaid in-warehouse Rotterdam.

--Greg Smart, greg_smart@platts.com --Edited by Jonathan Fox, jonathan_fox@platts.com