London 07/09/2016 - South32 and Rio Tinto Alcan have made their respective initial offers for fourth-quarter ingot supply to major Japanese ports (MJP) at $80-82 but buyers insist that they want closer to $70, sources told FastMarkets.
Rio Tinto Alcan made the first initial offer to buyers for the fourth quarter last week at $82 while three sources have confirmed that they received an offer of $80 late last week from Australian producer, South32.
Alcoa has yet to make an offer to buyers, FastMarkets understands, although market sources have said that the offer is likely to be no higher than $80.
Still, buyers have reacted with frustration again to the initial offers following two consecutive quarters this year where the spot market has traded far below the quarterly rate.
"Although we buyers would like to settle at $60s since spot is already like that, looking at how quarterly negotiations go for past year. I'd imagine it will settle somewhere at $70s. Why do we have to buy at $70s and sell at $60s? I have no clue," one trader told FastMarkets.
"We are not optimistic at all about the fourth-quarter negotiations. We have a target level of around $70 but I suspect it will conclude around $75," another said.
Japan imports almost its entire annual consumption requirement of around 1.7 million tonnes per year of aluminium ingots or 425,000 tonnes per quarter. It produces only 5,000 tonnes per year of ingots domestically. The majority of supply is negotiated on a quarterly basis.
But in the last two quarters in particular the spot market has averaged far below the prevailing quarterly settlement. In the second quarter, the spot market averaged $99 against the quarterly settlement of $115-117, trading between a peak of $111 and a low of $85.
In the third quarter, the spot market has averaged just $79 against the quarterly settlement of $90-93. Spot was $85 at its highest and $70 at its lowest.
"I just got off the phone with a big buyer in Japan who is not optimistic at all about things. They say even at $70 they will lose money. It's ridiculous - the spot market has been well below MJP all year. it's frustrating," another trader said.
Spot premiums for aluminium ingots in Japan were last assessed at $65-75 per tonne - the lowest on FastMarkets' records - under pressure from low producer offers for large tonnages.
Aluminium premiums in general have been depressed by several factors - most notably, oversupply. Still, total inventories at the ports of Yokohama, Nagoya and Osaka fell 10,900 tonnes to 305,900 tonnes at the end of July, the lowest since September 2014, from 316,800 tonnes in June. Stocks are also down 38 percent from July 2015 when they stood at 490,900 tonnes.
Buyers will now await the remaining initial offers from producers before the next stage of negotiations, with a view to reaching a conclusion by the end of this month.
(Editing by Mark Shaw)