Japanese aluminum buyers in negotiations with four producers for second quarter premiums have placed bids at $110/mt plus LME cash CIF Japan, rolling over the Q1 premiums, sources involved in the talks said Thursday.
Two producers have offered at $130/mt plus LME cash CIF Japan, and two at $125/mt plus LME cash CIF Japan, the sources said.
While producers said falling Japanese main port stocks ahead of Q2 -- Japan's peak aluminum consumption season -- suggested a market uptrend, Japanese buyers maintain that end-January stocks of 360,000 mt were 100,000 mt higher than the usual level.
Japan's stocks were returning to pre-2015 levels rather than tightening, the buyers told producers.
The current LME backwardation spread was also raising inventory costs and putting downward pressure on the premiums, said a producer source who was not participating in the Q2 talks.
The LME cash-three month spread was around $17/mt in backwardation Thursday.
The cash-one year spread was around $38/mt in contango, which the producer source said was not wide enough.
"That is $3/mt per month and the monthly warehousing fee easily exceeds $3/mt [in Japan]. There is already a loss," he said.
Japan's monthly main port warehouse fees are $4-$5/mt, higher than in South Korea and Taiwan but lower than at some facilities in Thailand, traders said.
Although producers and Japanese buyers were wide apart in their Q2 premium ideas, they mostly agreed that LME spreads would remain at current levels for some months, if not until the year end.
Japanese traders have attributed the steep cash-March 16 backwardation, which stood at $20/mt during Asian trading hours Thursday, to increases in canceled LME warrants, possibly resulting from LME warehouse rule changes.
"It is a combination of several factors. Another factor is the changing balance in the LME contract trades," said a Japanese trader.
MORE FORWARD SELLING
There were fewer market participants selling near-term contracts and buying forward months, while the number buying prompt months and selling forward, typically stock holders, was increasing, which was causing the spread to tighten, he said.
"Funds such as pension funds used to invest in commodities and were holding positions over a longer term, but they have left. This is causing the awkward spread," he added.
Several market participants Thursday said there were global finance institutions and trading houses seeking to sell aluminum stored in warehouses in South Korea, Singapore, Malaysia and the US.
They are asking if there was any interest for spot cargoes, but have not made firm offers, said one Japanese source.
"I expect to receive offers on an ex-warehouse basis rather than CIF," he added.
Platts assessed the spot Japanese import premium at $109-$111/mt plus LME cash CIF Japan Thursday, unchanged since February 24, in the absence of offers, bids or deals reported on a CIF Japan basis.
