February 27, 2014 / 8:22 AM / 3 years ago

China aluminium users to cut Q2 spot imports on record premiums

4 Min Read

* Traders want $350-$360 premiums for Q2 deliveries to China

* Spot premiums at about $320-$330 in Feb vs $240-$260 in Nov-Dec

* Domestic prices have fallen to near mid-2009 levels

By Polly Yam

HONG KONG, Feb 27 (Reuters) - China's users of primary aluminium are set to cut imports of spot metal in the April-June quarter as they don't want to pay the record premiums demanded by sellers and may instead use more domestically sourced metal whose prices have fallen.

A drop in imports by users in the world's top consumer and producer of primary aluminium could add to pressure on global prices that near levels last seen in mid-2009.

Global trading firms are asking Chinese importers to pay premiums of $350-$360 per tonne over the cash London Metal Exchange price of the metal for second-quarter deliveries, while importers were agreeable to a maximum of $340, traders said.

The Chinese reluctance to pay up comes as global producers of primary aluminium have sought record $370-$375 premiums from Japanese buyers, the biggest importers in Asia, for term shipments in the second quarter, traders said. Buyers pay premiums to secure deliveries of physical metal.

Chinese importers had paid $240-$260 premiums for spot metal in November-December 2013 and were asked to pay $330 premium for February deliveries, traders said.

"For the second quarter, we won't book spot," said a manager at a factory which uses the metal to manufacture semi-finished products in the southern province Chinese of Guangdong, home to dozens of such factories.

The factories in Guangdong would book spot imports only after they received export orders which meant they could pass on the record premiums to clients, the manager added.

Some factories were likely to use more Chinese aluminium for exports in the second quarter due to low prices, traders said.

Prices of the front-month aluminium contract on the Shanghai Futures Exchange stood at 13,230 yuan ($2,200) per tonne on Thursday, hovering near levels last seen in June 2009. The price is used to value spot metal in the domestic market.

In China, factories that use primary aluminium to manufacture semi-finished products for exports typically import metal if a higher grade is required. They can use Chinese metal if a higher grade is not specifically needed.

Data showed China's imports of primary aluminium rose 215 percent from year ago to 54,878 tonnes in January.

Term Shipments

China's users holding term contracts with global suppliers would stick with the contracts and take shipments in April to June despite the record premiums, traders estimated.

Importers in China use Major Japan Port (MJP) premium mostly for term shipments. It is used as the benchmark in Asia.

"We will take term shipments in the second quarter. We probably don't need to buy spot metal," said a purchaser for a large factory. He added that the firm was facing a tough time convincing clients to accept the record premium. The clients were mostly kitchenware and home appliances makers.

Supply of spot aluminium in Asia had fallen after the record premium sought from Japan, as global trading houses were holding off metal, waiting for higher premiums, traders said.

Trading houses have booked large amounts from global producers to store the metal in warehouses to earn higher prices for forward shipments, a trader at a global supplier said.

Prices for three-months delivery on the LME was about $45 per tonne higher than the LME cash price on Thursday. ($1 = 6.1248 Chinese yuan) (Editing by Muralikumar Anantharaman)

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