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US Section 232, Chinese supplies weigh on Japanese Q2 aluminum talks

Wednesday, Feb 28, 2018

   The Japanese aluminum premium negotiation process for the coming quarter will be different from the past due to uncertainty over US Section 232 and Chinese supply policies, market sources said Monday.

  Russian producer Rusal has offered $135/mt plus London Metal Exchange cash, CIF Japan for Q2, up 31% from $103/mt CIF Japan for Q1.
  Rio Tinto, South32 and Alcoa are expected to place their offers this week, Japanese buyers said.
  In the past, buyers and sellers had aligned their target premium to the first offer. Typically, buyers would counter-bid $10/mt below the offer, the second producer would offer $2/mt below the first producer, and gradually, a few buyers and producers would move closer.
  Some buyers have said they do not see the aim of Q2 negotiations to be getting a premium as low as possible.
  They said with uncertainties over US policies and Chinese supplies, they wanted to exchange information and outlook, and mutually agree on how to translate changes in market dynamics on the CIF Japan quarterly premium.
  US buyers are placing last minute import orders with nearby countries, pushing up the Midwest spot premium. But the momentum will likely slow as April 19, the deadline for the US president's decision on aluminum imports, approaches, sources said.
  Two Japanese traders and one Japanese consumer said they would suggest using the Chicago Mercantile Exchange US Midwest premium futures values for the April-June period as the base line of CIF Japan premium discussions.
  The April-June CME swap values would show US market expectations taking into account the possibility of a 7.7% duty on aluminum imports into the US, they said.
  "Take the April-June swap value, take the 7.7% duty away, inland freight away, as well as the freight to US from Australia or other ports of loading, to get the equivalent Japanese premium value," said one Japanese trader.
  Another trader said he supported this approach, but the question was the timing. He said there is room for US spot premium and the CME futures to increase as the market is still in the process of digesting the Section 232 investigation result.
  One Japanese trader said he was uncomfortable with factoring in the possible 7.7% duty as there is always a possibility of the Trump administration taking other options such as setting an import quota rather than a duty, or not taking any action.
  His premium idea would be basis spot deals, offers and bids hearing in Asia.
  "The Chinese winter output cut was not impacting after all. After March, Chinese smelters will ramp up output and the oversupply situation will weigh on the market," said a second Japanese consumer.

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