South Korea's aluminum premiums rose $2/mt week on week to be assessed at $67-$70/mt plus LME cash, CIF Busan, Wednesday, up from $65-$68/mt last week.
Most of the support came from China, which is importing P1020 following a dramatic surge in domestic aluminum prices in the last two weeks. On average, China has been paying premiums of $85-$90/mt CIF Shanghai for imported metal, sources said.
"Everyone is moving South Korean stocks to China," a Western trader said.
"Lots of people are diverting metal from Singapore, South Korea and other places to China," a second Western trader said.
"With Chinese imports, Asia will see support. There are structural changes in China [relating to] transportation, coal issues. It will take time for things to resolve," said a third regional trader.
"The SHFE is up because of transport rules ... dramatic increase in costs of transportation, production. The LME-SHFE import arbitrage is driving up the [Asian premium] prices," a fourth trader said.
A producer put the market clearing range for South Korean premiums at $67-$69/mt CIF Busan, for Australian and Indian metal. "[A premiums of] $68/mt is a good [average] number," he said.
A second producer priced Australian P1020 at $70-$73/mt CIF Busan, but it was not clear if buyers were willing to pay that much for fresh seaborne shipments into Busan.
Other traders said Chinese demand offered only temporary support, as the arbitrage window for imports rarely stays open for long.
India's Nalco awarded a sell tender at $68.75/mt plus LME cash, CIF Singapore, for 2,000 mt of ingots for shipment in four 500 mt/month clips between November and February.
The buyer may be planning to take the metal to Bangladesh.
Nalco would have levied freight upcharges of $9/mt and $19/mt for Busan and Incheon, respectively. A number of Western producer and South Korean trader sources said they did not view the Public Procurement Service's tender result last week at $66.50/mt CIF Busan to be necessarily indicative of the spot market in South Korea.
In any case, the PPS tender results often elicit mixed opinions among market participants.
"We think the next quarter's premium may be a little higher than the fourth quarter, so no one needs to offer aggressively, despite high South Korean stocks," a South Korean trader said.
"It is difficult to make a profit. There is no contango, lots of competition, lots of warehouse stocks so traders want to draw down stocks," another local trader said.
There was severe congestion and cost increases in overland transportation in China, following a nationwide crackdown on overloading of cargoes since late September.
In addition, maximum load allowances have been lowered. These measures have raised the cost of local transportation by about 30% in recent weeks, market sources said the last couple of days.
In addition, China's aluminum smelters were grappling with a surge in coal prices on the back of shortages brought on by Beijing's push to slash local coal output as part of a campaign to rein in pollution.
FCA BID-ASK CENTER $80-85/mt
Sources said South Korean domestic ex-warehouse bid-ask premium discussions centered at $80-$85/mt FCA Busan for lots comprising 200-300 mt.
S&P Global Platts surveyed market participants earlier on how they would convert FCA Busan values to CIF, and a number indicated that CIF values would typically be about $10/mt below FCA.
Others have cited price differentials ranging from $5-$15/mt or none at all. The conversion differences appear to stem from varying credit terms, trucking cost arrangements, discharge rates at the ports, terminal handling charges, bulk and containerized freight rates, and in certain cases currency upcharges as well.
The conversion differences may also be related to whether the metal is stored in a LME-registered or non-LME registered warehouse, a trader also said.
Platts South Korean aluminum spot assessment reflects the premium or discount to the LME cash price for P1020A ingots CIF Busan basis, for P1020 of any origin, with a typical trade volume of 200 mt to 2,000 mt for loading in the next 30 days, duty unpaid.
The specifications are P1020A ingots to meet minimum LME specification, 99.7% Al min, max 0.1% Si, 0.2% Fe, 0.03% zinc, 0.04% gallium, 0.03% vanadium. The assessment is normalized to reflect metal with a maximum iron content of 0.14%, reflecting dominant trading patterns in South Korea.