Russian aluminum producer Rusal told Japanese aluminum buyers via an email Monday that it sees the appropriate second quarter contract premium to be $125/mt plus London Metal Exchange cash CIF Japan, market sources said.
The $125/mt premium is a hike of 32% from Q1's $95/mt plus LME cash CIF Japan for Q1.
Japanese buyers said they were waiting for Rio Tinto Japan and South32, the other major sellers, to place their Q2 offers.
The Q2 aluminum contract negotiations are for P1020/P1020A ingot as well as value added products such as slabs, billets and foundry alloys. Talks typically settle at the end of March.
"The question is, will Rio and South32 offer above Rusal?" asked one Japanese trader.
He said the US spot premiums would be the basis for discussing the Japan's second quarter premiums, as most producers supplying to Japan have been shipping metal to the US in the past month or so.
Japan buys aluminum from Australia, New Zealand, Malaysia, the Middle East, Canada, Russia, South Africa and South America.
Platts Midwest premiums, or the US spot premiums, stood at nearly a two-year high of 10 cents/lb ($220/mt) delivered Midwest since February 13.
Freight from US main ports to the Midwest is $30-$50/mt, sources said.
"Producers have been saying, Japanese need to pay the US equivalent or they will sell to the US," said a second Japanese trader.
"Producers see the Midwest premium to be at 10 cents/lb or at other numbers. They may say, the appropriate Japan level would be at US premiums minus extra freight cost for shipping the metal to the US away from Asia," said the first trader.
Japanese traders said bulk freight from Australia to New Orleans was $25-$40/mt.
They also said they have heard around 500 mt of aluminum shipped to the US via container ships from Australia, but since contract cargoes are carried by bulk ships, bulk freight will be the basis for Japanese premium calculations.
Throughout Q1, Platts CIF Japan spot aluminum premiums stayed unmoved at $95-$100/mt plus LME cash CIF Japan. For the first six weeks of the year, backwardation in the LME spread discouraged buyers. Japanese companies were also focused on reducing stocks, as their financial year ends in March.
Two Japanese rolling mill sources said they were getting more inquiries from their end-user customers in the past week or so, as the end-users were expecting a rise in the domestic aluminum prices in the near term, on the back of the stronger US dollar and the LME's rise above $1,800/mt last week.
One rolling mill source said he may need to buy a few hundred tons additionally. A second mill source said he too was receiving more orders for March but that would mean less orders in April, as end-users were only changing their time to buy.
"We will go to the local spot market rather than import. There are traders destocking and they are generous with lower premiums," said the first mill source.
"Japan is around the first quarter contract level of 95, Japan is digesting stocks and have enough," said a producer source.