MJP aluminium spot premium slips on fall in demand, lower deals
Aluminium premiums in Japan dropped by an average of $2.50 per tonne to $175-190 per tonne on Friday August 13, from $180-190 per tonne on August 10, with low buying interest weakening demand in recent weeks.
Fastmarkets assessed the aluminium P1020A main Japanese ports (MJP) spot premium, cif Japan at $175-190 per tonne on Friday, marking its first change since July 20.
No spot trades were reported to Fastmarkets in the week to August 13, but some market participants said that they had earlier concluded deals for August arrival at $155 per tonne. A singular standard shipment for September loading was reported at $195 per tonne.
Demand in Japan, which is Asia’s biggest importer of aluminium, has been lackluster over the past two weeks. And the move to lower spot premiums is in stark contrast to other major buying regions, with Europe and the United States paying ever-larger fees above exchange prices for spot metal.
Part of the reason for weak demand in Japan is seasonal; for around a week-to-10 days in August, the automotive industry takes its annual holiday, reducing plant operations and reducing the need for prompt volumes.
Demand typically peaks by the end of summer, however, once automotive production resumes and due to the increased consumption of canned beverages in summer, according to sources.
Market participants questioned whether the deal at $195 per tonne was “repeatable” in current market conditions, however, with supplies into Japan and across East Asia said to be more than sufficient in the past two weeks.
“Producers are shipping as usual [and] have spot [cargoes] from time to time. At least one producer has told us that shipments into Southeast Asia have been deferred, [so] there should be surplus metals in the region,” a Singapore-based trader said.
Amid the currently softer market fundamentals, the bid-ask gap for aluminium premiums has widened, with traders divided in two camps: one seeing the market within the range of $150-160 per tonne; two, above $185 per tonne.
“Traditional suppliers into the Japanese markets are the producers and the larger traders [barring at least one international trader]. These traditional traders negotiate contractual volumes based on quarterly numbers so it makes sense for them to keep offers high,” said a second Singapore-based trader.
“Although we see deals concluding at $150s-per-tonne, it’s likely that not many traders [will be] comfortable offering at this price,” another Singapore-based trader said.
In June, Fastmarkets settled its premium for the supply of aluminium to main Japanese ports (MJP) for the third quarter of 2021 at $172-185 per tonne over the London Metal Exchange cash price.
With support from the six-year high quarterly premiums, there appears to be limited space for large declines in spot premiums.
Traders based in Japan have also started to acknowledge the softening of the market, with at least one source expecting to lower spot prices to remain competitive.
“Demand is not strong, so to be competitive, we are thinking of offering at below $190 per tonne, otherwise we won’t be able to do business,” the trader said.
Apart from lending support to MJP spot premiums, quarterlies have also led to the divergence of pricing between the MJP market and the rest of Asia, with Southeast Asia countries currently facing prolonged Covid-19-related restrictions.
Sources reported spot negotiations as “non-existent” in many southeast Asian countries, with Vietnam, Indonesia and Thailand scrambling to combat fresh Covid-19 outbreaks.
“Buyers are quiet. Even Taiwan - where buyers previously had the highest purchasing power - has gone quiet. I’d say a workable range into Taiwan was about $170-175 per tonne before the recent semi-lockdown in May to combat the spike in Covid-19 cases. But now there are no takers,” a trader selling into Taiwan told Fastmarkets.