London 24/05/2016 - Consumers and trading houses expect the third-quarter benchmark for P1020 aluminium ingots for delivey to major Japanese ports (MJP) to decrease, with most predicting a settlement at $90-100 per tonne. Negotiations will start next week.
Buyers see premiums dropping for the third quarter from $115-117 per tonne in the second quarter while worries about spread tightness on the LME and supply overshadow the market.
"I think it will be at best $100 but more likely to be in the $90s. Traders are now becoming sellers and aggressively offering material in the market," a trading source in Japan said. "Some believe that spreads will return to backwardation in the third quarter although now it's all at contango."
On the LME, cash/June, cash/July and the benchmark cash/threes were last at $0.5, $6.5 and $8 respectively on Tuesday.
"You see the domestic market is also easing, which indicates the trend is going down," a second trader said.
But the third-quarter settlement will not be too far from the second-quarter benchmark because some trading houses play a dual role as a producer, he suggested.
Japanese port stocks declined six percent in April to 324,800 tonnes, their lowest since September 2014, from 345,600 tonnes in March. But sources played down the significance of the move.
"It's true that port stocks have come down to realistic levels but the decline is not huge to support a higher premium," a third trading source said.
Third-quarter premiums might only fall $10 from the second quarter because any deeper cuts would not be beneficial either for buyers or sellers, he added.
"If it drops too quickly, [both sides] will need to do stock valuation for metal stored in warehouse. Nobody wants to do that. Also, end-users will start to ask for a discount," he added. "There will be a loss of value of our stocks in warehouse."
Elsewhere, premiums in the US have also slipped to 7.5-7.9 cents per pound from 7.75-8.0 a week ago - imports into the country have climbed 10.3 percent year-on-year - while rates held steady at around $75-85 per tonne on duty-unpaid in-warehouse basis in Rotterdam.
Japan, one of the world's largest aluminium-consuming countries, is dependent on imports from international producers, sourcing almost all of the 1.7 million tonnes per year of aluminium it consumes via international shipments - most of which are settled on a quarterly basis.
(Edited by Mark Shaw)