Top suppliers of Western-grade aluminium to Asia are under pressure to cut up to 10 percent from April-June premiums, as China floods the region with metal to make the most of prices near their highest in a decade, traders said on Monday. Spot international aluminium prices have risen nearly 5 percent in the last month, prompting many Chinese smelters to export the metal, which is used widely in the construction, packaging and auto sectors, despite a new 5 percent tax on exports imposed from January 1.
Aluminium stocks have swollen throughout Asia this year, and traders and smelter officials said China would continue to ship large quantities this month and in the second quarter.
"Nobody wants the metal now. People laughed when we said premiums were $20," said a trader who only a month ago offered Chinese aluminium at a premium of about $40 over the cash London Metal Exchange price, ex-Hong Kong.
Chinese smelters were now offering spot aluminium at between the cash LME price and a discount of $30, from Chinese ports, traders said.
Premiums on Western grades of aluminium are higher than those on Chinese metal. Some Western aluminium producers have offered to cut term premiums by $5 for shipments to Japan in the April-June quarter, to $81-$82 a tonne over the cash LME price.
But Japanese buyers are asking for steeper cuts. One large international trading house was now offering Western-grade aluminium to Japan at a premium of $75 over the cash LME price for the second quarter, traders said.
Japanese premiums - the benchmark for Asia - were set at $86 to $87 for the current quarter.
One trader said he had sold Chinese metal to a Japanese end-user, for delivery in the April-June quarter, at a premium of $47.
Traders said Western producers were offering term premiums of around $85 a tonne for the coming quarter for delivery to Hong Kong and China, against $90 to $95 in the current quarter.
They said Asian demand for spot aluminium was weak, because end-users in Taiwan, South Korea and Japan were holding high stocks built over the past few months on fears that China's new export tax would curtail shipments.
As well as the new tax, Beijing cancelled a rebate of 8 percentage points on the 17 percent value-added tax exporters must pay.
Some Chinese aluminium product makers that import the metal and re-export finished products had delayed contracted imports, traders said, buying cheaper metal at home instead.
Chinese spot prices had risen less than 1 percent in the past month to around 16,300 yuan ($1,970) a tonne, dampened by an increase in supplies built during the Lunar New Year holiday, they said.
Traders said weak demand in Asia would prompt suppliers to divert some cargoes originally offered to the region to Europe and the United States, where premiums are currently higher.
Traders saw premium offers for spot Chinese aluminium to Taiwan at $45 to $50 a tonne and to South Korea at about $30, against $55-$60 and $40-$45 respectively a month ago.
Premiums offered to other Southeast Asian customers were about $55 a tonne over the LME cash price, they said.
By 0823 GMT on Monday, benchmark three-month LME aluminium was trading at $1,968/$1,972 a tonne. The cash price was $39/$42 higher.
Three-month aluminium hit a 10-year high of $1,987 on February 24.
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