TOKYO: The difference between Japanese and South Korea spot aluminum premiums has reached $20.50/mt, the widest on record since S&P Global Platts launched its South Korean premium assessment in July 2015. On Wednesday, the Japanese spot import premium was assessed at $102-$104/mt plus London Metal Exchange cash, CIF Japan, while the South Korean spot premium was at $80-$85/mt CIF Busan.
In recent history, the spread between the two premiums has typically averaged around $5/mt. The South Korean premium fell from $85-$90/mt CIF Busan a week ago due to increased exports of Chinese semi-finished products, such as coil and plates. This has compromised demand for P1020 aluminum ingot, sources said. Meanwhile, Japan’s premium has stayed unmoved at $102-$104/mt plus LME cash CIF Japan this week. Chinese material, that has limited track record in Japan, has not made visible impacts on Japanese market yet, sources said. Producers and international traders said there is a strong drive to export metal to the US due to the US spot premium surging to 11.50 cents/lb delivered Midwest, and this is giving support to Japanese as well as the European spot premiums. SHFE aluminum prices have been floundering at a time when LME aluminum values have been thriving, opening the arbitrage window for Chinese exports. The arbitrage window has been open for over two months, which sources said was an uncommonly long period compared with recent years, when the opportunities for China to export tended to last weeks rather than months. LME aluminum values were higher than SHFE by about $446/mt and Yuan 2,851/mt in import parity terms at the close of market on Wednesday. A Korean trader estimated that Korea may have taken delivery of about 20,000-30,000 mt/year of Chinese aluminum products, in the last two years. The country typically imports about 1million mt/year in all, so it wasn’t a significant proportion. Korea levies an import tax of over 5% on aluminum semi-finished products from China. But even so, the bearish impact of Chinese exports is considerable, sources said. This is because Chinese exports have been penetrating markets across the Asian region, and as premiums in these markets fall, stockholders are forced to drop their premiums into Korea as well, sources said.
