Aluminum restocking driven by wider London Metal Exchange spreads has been limited in Asia, with most interest from Europe and US-based buyers, market sources said Friday.
A producer and an international trader said inquiries have increased in the past few weeks clearly due to the wider contango spread, mostly from Europe, followed by the US and Asia.
"I am getting phone calls all day because people want to buy, while premiums are relatively low," said the trader, whose company was headquartered in Europe.
The producer said the rise in the US spot premium to 7.5 cents/lb from 7.25 cents/lb this week also fueled buying interest.
Market sources in Asia, however, said they were not restocking.
LME spreads for nearby cash-August/August-September/September-October were $6-$10/mt, from $3-$4/mt previously, but those beyond October remained at $3-$4/mt, sources said.
"Spread does not reflect physical market outlook such as possible tightening of supplies in the near future due to China output cuts. Rather, it is purely a technical reflection," said a producer, who has not seen any rise in inquiries from Asian customers.
"Wider spread discourages LME warehoused cargo outflow into the physical market. That is what it does," he said.
Traders in Asia said the wider nearby spread was caused by several LME futures market participants selling nearby and buying forward to adjust their books. Such moves, however, occurred regularly among investment funds with a long-term commodity investment portfolio, they said.
There was limited restocking in Asia as potential buyers fear spreads flipping into backwardation.
Some traders also said the recent spread moves could be related to the physical spot market premiums.
"Those picking up cargoes with low premiums may be selling nearby and buying forward, generating a contango spread in the LME contracts," said one Japanese trader.
