South Korea's primary aluminum spot premiums were rangebound in the last week at $108-$112/mt plus LME cash, CIF Busan, despite lackluster import volumes.
An extremely bullish Chinese domestic aluminum market had put a floor under South Korea, preventing premiums from slipping despite sluggish demand among the consumer and financial investor communities.
Trading volumes into South Korea were thin, market participants said, with low factory orders impacting consumer demand, and traders and banks discouraged from restocking and keeping tons, due to tight spreads in LME aluminum prices.
South Korea's auto and electronics manufacturing sectors were in the throes of a slow down, sources have said in recent weeks.
A producer said while the Chinese and Japanese markets were bullish and supported respectively, there were no noticeable new volumes into South Korea. "In fact, we saw a slight diversion [to other markets including Bangladesh and Malaysia]," he said. The producer put the market clearing rate for seaborne shipments to Busan at $108-$112/mt plus LME cash, CIF basis, and at $105-$110/mt for metal with higher iron content.
A second producer reported the sale early week of May, 3,000 mt to a South Korean trader at $116/mt plus LME cash, CIF basis, with the tonnage destined equally for Busan and Incheon. However, the producer agreed that the wider spot market was below $116/mt. "It's a little quiet in Korea," he noted.
A trader reported being in discussion to offload Indian metal at $117.50/mt plus LME cash, FCA Incheon.
A second trader said domestic premium discussions tended to center $108-$115/mt FCA basis, depending on whether the metal was duty free or would attract a 1% import duty.
According to a South Korean consumer, offers for duty-free metal with lower iron content tended to be at least $115-117/mt plus LME cash, FCA basis.
Platts surveyed market participants earlier on how they would convert FCA Busan values to CIF, and a number indicated that CIF values would typically be about $10/mt below FCA. Others have cited price differentials of $5-$7/mt or none at all. The conversion differences appear to stem from varying credit terms, trucking cost arrangements, discharge rates at the ports, terminal handling charges, bulk and containerized freight rates, and in certain cases currency upcharges as well.
China's domestic aluminum prices have been trading at a 10-month high since last Friday. The front-month aluminum contract on the Shanghai Futures Exchange closed Wednesday at Yuan 12,800/mt ($1,974/mt), or about $1,674/mt on an import parity basis, after taking into account port charges, a 17% value added tax and the day's yuan-dollar exchange rate.
A number of Chinese primary aluminum smelters have switched to producing molten metal rather than ingots, contributing to a drawdown in domestic ingot stocks, and corresponding surge in ingot price, market participants said in the last couple of days.
The draw on China's P1020 ingot inventories is also a result of the country idling 4 million to 5 million mt/year of loss-making smelting capacity during the last two quarters, sources said.
The curtailments, switch to molten output, coupled with Beijing's fiscal stimulus measures to stimulate the domestic economy, including a large scale revamp of power network facilities in rural regions, have fuelled demand for assorted aluminum products, sources said.
China-based alumina participants said smelters have been able to lower their power costs by keeping molten in their potlines, and avoiding cranking up their plants to high temperatures required to make ingots. Moreover, keeping a smelter online at molten-mode also significantly reduces the cost of restarting the unit when aluminum margins regain profitability, a trader also said.
Additionally, three-months LME aluminum was also at a seven-month high, deterring buyers from building long positions.
Platts South Korean aluminum spot assessment reflects the premium or discount to the LME cash price for P1020A ingots CIF Busan basis, duty-unpaid, for P1020 of any origin, with a typical trade volume of 200 mt to 2,000 mt for loading in the next 30 days.
The specifications are P1020A ingots to meet minimum LME specification, 99.7% Al min, max 0.1% Si, 0.2% Fe, 0.03% zinc, 0.04% gallium, 0.03% vanadium. The assessment is normalized to reflect metal with a maximum iron content of 0.14%, reflecting dominant trading patterns in South Korea.
