South Korean traders Hanwha Corp and LG International have decided to wind up their aluminum trading businesses, company sources confirmed.
Both companies will continue to honor their term contracts but won't be entering into new term agreements, the sources said.
Market participants attributed the move to heavy losses incurred in the last two years. Since the start of the year, a number South Korean traders have been downsizing their aluminum positions, after being badly hit in 2015 when premiums fell more than $300/mt over the course of the year.
Traders such as Daewoo International and STX Corp have also been curtailing domestic warehouse stocks, lately typically keeping in storage about 10,000 mt/month, or about a third of their monthly average in previous years.
For a large part of the year, a producer has said its term contract customers in Korea have repeatedly asked to cut volumes because spot premiums were steeply discounted to the quarterly contract price set by Japan. Hanwha used to import 15,000-20,000 mt/month of ingots to be held at warehouses in Busan, Incheon and Ulsan. LGI also kept warehouse volumes in Busan and Incheon.
LGI spokeswoman JH Park said the company also plans to close its other non-ferrous metals trading divisions such as copper, tin and zinc. But LGI plans to retain its share of investment in the development of the Rosemont copper mine in Arizona, US, Park said.
As South Korean market participants strategize purchasing plans for 2017, there appears to be a tendency to slash yearly and quarterly term contracts in favor of monthly buys. Local consumers and traders may also be considering taking more exposure to the spot market.
Korean traders have said they planned to cut back on term contracts in the new year because in the last two years premiums have fallen over the course of each quarter, forcing them to resell at losses stocks they paid high premiums for.
Additionally, rather than exclusively sourcing metal directly from smelters, which Korean traders have traditionally done, there have been discussions about broadening their supply source to global traders as well. "We can get material from everywhere. Global traders, smelters have spot volumes, there's [less or] no need for long term contracts," a trader told S&P Global Platts earlier.
"No trader can resell at one [constant] premium for three months, [so we have decided to focus in 2017] on more back-to-back [spot trades]," a second trader told Platts last quarter.
In February, steel producer Posco P&S exited the aluminum business, transferring its book and other non-ferrous metal trading business to its subsidiary Daewoo International.
Daewoo, one of South Korea's largest trading companies and a subsidiary of Posco, already had an independent aluminum book.
