Platts assessed spot premiums for aluminum imports into Japan at $109-$111/mt plus London Metal Exchange cash CIF Japan Monday, unchanged from last Wednesday, as spot trades thinned with the start of the quarterly contract negotiations.
Rio Tinto Japan told Japanese buyers it was suggesting $130/mt plus LME cash CIF Japan for the Q2 premiums, up 18% from $110/mt for Q1, Japanese buyers said. Other producers have not made offers yet.
Japanese buyers typically wait until the quarterly talks settle before going into the spot market.
In addition to the seasonal negotiation factor, the LME cash-three months backwardation spread, at $17/mt during Asian trading hours Monday, is also discouraging spot trades, added sources, including one overseas seller.
"Even if Q2 premiums rise, with the backwardation, one cannot buy spot at $110/mt but needs to be below," said one trader, who put $105-$110/mt as the tradeable spot premium level.
"$100/mt offers will probably not find any buyers because of the backwardation," said another source.
The spread is also making the outlook cloudy.
"One cannot be sure whether recent market developments have been triggered by the spread, or if supply and demand fundamentals are weak," said a second trader.
"One can point to weaker European and US premiums to say the market is trending down, but again, they may not be a straight reflection of the fundamentals but affected by backwardation," said a third trader.
The uncertainty is said to be deterring spot trades.
"If there is a need to buy, transactions will be in smaller volumes. And market participants don't want to hold more stocks than necessary," said the third trader.
Market participants were divided on how they saw the market once the LME spreads turn into contango.
"After all, several months ago, the spreads were in $20-$30/mt contango," said a fourth trader. "The market is not tight but it is not like metal is everywhere," he added.
Some market participants said they were looking at Japan's main port stocks figures for a direction. They, however, were divided on the data interpretation.
Trading house Marubeni said end-January main port stocks stood at 368,100 mt, down from 393,600 mt in December and from 449,800 mt a year ago.
Stocks, though decreasing, were still higher than the typical average level of 250,000 mt.
"The stocks are not coming down as fast as I had hoped. I was expecting stocks to hit 350,000 mt at end-January," said a fifth trader.
But the entire port stocks are not always available for sale, said the market participants who projected Japanese spot premiums firming.
