Japan aluminium premiums not responding to China export tax talk

Premiums for primary aluminium ingot imported into Japan are not likelyto be impacted if China imposes a new export tax of 5% on aluminium alloy,market sources said Wednesday. China removed the 5% export rebate for zinc exports last week, and thereis market talk that a 5% export tax for aluminium alloy products will beintroduced this year. The 5% export tax will not discourage Chinese aluminiumexports to Asia, will have limited impact on the Asia's aluminium supply, andthus is not likely to affect the Japanese import premiums, market sourcessaid. Aluminium on the Shanghai Futures Exchange has been trading $100-200/mtlower than the London Metal Exchange prices and this spread has fueled theChinese exports, sources said. Exporters are likely to make profit fromexporting, even with the 5% tax, if the $100-200/mt spread remains, theyadded. "I believe producers are likely to bring this issue up in the upcomingfourth quarter premium talks, saying that the tax will tighten Asia's supply. But I have doubts about the 5% tax tightening supply," said one Japanese buyerwho will be participating in the Q4 premium talks. Japanese aluminium buyers and Western producers are set to meet at theend of the month to negotiate for the premiums for the fourth quartershipments. Spot premiums had weakened to $81-82/mt plus LME cash CIF Japanlast week, down from the third quarter contract premiums of $87-89/mt. However, if a higher tax rate of over 10% is imposed, Chinese exports toAsia are likely to fall. But Asian consumers may not feel supply tightening asdemand is also shrinking, sources said. The sign of tighter supply will be indicated by the SHFE aluminiumprices, sources added. If the SHFE aluminium starts to trade above LME levels,that means Chinese domestic supply, as well as Asia's supply, is finallytightening. CHINESE ALUMINIUM OFFERED WITH A DISCOUNTMeanwhile, some Chinese traders appear to be selling away their aluminiumstocks, just incase the export tax is imposed next month, sources said. Some exporters are offering to sell 99.7% Chinese aluminium with adiscount from the LME cash prices, said Korean and Japanese traders. However, one Japanese trader said he does not plan to mention this whenhe negotiates with Western producers for the Q4 premiums. "This is a one time phenomenon, to balance books before September. Thediscount offers are not likely to continue," he said. Other Japanese buyers participating in the Q4 talks do not plan toactively mention about the Chinese discounts either. The Japanese said since Japan imports limited quantity of Chinese metal,they would like the upcoming premium talks to focus on the Japanese marketfundamentals, and that the talks stay "China-free." Source: Platts