Japanese spot aluminum trade continued to stall due to uncertainties over market direction stemming from London Metal Exchange spreads, Japanese contract premiums and the widening gaps between Asian, European and the US premiums, sources said Wednesday.
The S&P Global Platts CIF Japan spot aluminum premium was assessed at $66-$74/mt plus London Metal Exchange cash CIF Japan on Wednesday, unchanged from August 24 in the absence of transactions, offers and bids.
One of the uncertainties was how the wider contango in the LME futures impacting the market.
The LME cash-three month spread widened to $15/mt earlier this month, compared with $5-$10/mt in August, before narrowing to $13.50/mt at the end of London trading hours Tuesday.
"There are less sellers, as international traders have stopped making offers, basis CIF Asia main ports," one Japanese consumer said.
The wider contango, making it easier to hold inventories, discouraged sell-offs, but buyers were not reaching out to buy.
"Market remains in over supply. There are less sellers today but sellers are still there," the Japanese consumer said.
One international trader put tradable Japanese spot import level at $65/mt plus LME cash CIF Japan, but he has not offered due to absence of inquiries.
"Not all market participants are impacted by the cash-three months spread. Some are affected more by month-to-month spread. There is no benefit from the current spread structure and we are not making new moves," one Japanese trader said.
Cash-September was $1/mt in backwardation last week, and September-October, October-November and November-December spreads were $3-$4/mt. These spreads were not enough to cover interest rate and warehousing costs of $4-$5/mt in Japan, the Japanese trader added.
"There is benefit for people expecting delivery of seaborne cargo, as there is no warehousing cost," said one global producer.
One shipping company source said as the general premium direction was down in Asia, as shown by the recent fourth-quarter Japanese contract premium agreements, Japanese traders were continuing to wind down inventories to avoid losses.
Three or more Japanese companies have agreed with several producers to set the Q4 contract premiums at $75/mt plus LME cash CIF Japan, down from $90-$93/mt plus LME cash CIF Japan for Q3.
Some Japanese buyers, having rejected producers' offers at $75/mt, were seeking options to buy Q4 shipments from international traders at lower premiums.
A Q4 deal at $60/mt plus LME cash CIF Japan was done between two traders last week, sources said. The deal was for 1,500 mt/month of 99.7% minimum aluminum guaranteed ingot of Good Western origins which would include Australian, Brazilian, Canadian, South African and Middle Eastern metal.
A non-Japanese trader indicated an interest for a Q4 deal at $70/mt plus LME cash CIF Japan to one Japanese buyer, but the parties decided to wait for the negotiations between producers and other Japanese buyers to settle.
The prospective Japanese buyers showed little interest for a single spot cargo, sources added.
One Middle East producer noted that while the US and the European spot premiums rose, Japan was not following the trend, creating a wider gap in the premiums.
The US spot Mid West transaction premium was assessed September 20 at 6.25/lb delivered Mid West ($138/mt). The premiums were up from 5.85 cents/lb on September 7.
The European duty-unpaid premiums were $68-$73/mt plus LME cash CIF Rotterdam Tuesday, up from $60-$70/mt on September 7.
Spot deals to some regions may not be workable depending on freight, the producer said.
The producer put container freight from the Middle East to the US at $85-$95/mt, to Europe at $45/mt, and to Asia at $30-$40/mt.
An international trader put container freight from the Middle East to the US at $40-$50/mt, to Europe $30-$40/mt and to Asia $5-$10/mt.
