London 16/03/2016 - One aluminium producer has lowered its initial offer for second-quarter ingot supply to $115 per tonne for delivery to major Japanese ports (MJP), well-informed industry sources said.
This is down between eight and 12 percent from initial offers of $125-130 per tonne from producers two weeks ago and close to consumers' initial bids of $110.
Buyers of aluminium P1020 ingots in Japan had been expecting a "slight increase" in the second-quarter MJP premium. Still, some had been hoping for a rollover of the first-quarter rate of $110, which was settled 22 percent higher than in the fourth quarter of last year.
"$125-130 is not matching the market - now they admitted it [by lowering the offer]," a source in Asia said, noting that the benchmark should be in line with the spot market.
Aluminium ingots have been trading in Japan at spot premiums of $105-125 and have averaged $114 since the start of 2016, according to FastMarkets' assessments.
In Europe, spot premiums are at their lowest since October 2015 at $70-80 per tonne in Rotterdam on a duty-unpaid in-warehouse basis while the US Midwest premium has retreated below 8.0 cents per pound to a four-month low.
High inventories of aluminium at major Japanese ports have justified the lower offer, sources said, even though stocks dropped to 365,600 tonnes in February to 16-month low.
While producers have previously argued that higher benchmarks are justified by the drop in port stocks, the rate at which they are falling is starting to slow.
The rate of the fall in aluminium stocks at Yokohama, Nagoya and Osaka in December and January was half of that in October and November when more than 72,000 tonnes were removed. Furthermore, stocks dropped just 2,500 tonnes in February.
"Stocks only dropped marginally and are still in a high range in a long-term view," the first source noted, adding that high stocks in South Korea, from where the metal could be shipped to Japan easily, should also be taken into account.
"In Asia, the metal is already there - sitting in the warehouses," he said
Japan typically meets almost all of its 1.7 million tonnes of annual demand for aluminium ingots from imports and the majority of supply is negotiated on a quarterly basis.
(Additional reporting by Ian Walker, editing by Mark Shaw)