Asian aluminium premiums sag as Chinese exports surge

Asian aluminium premiums extended their downward slide in May as swelling China exports piled more pressure on the already swamped region.

However, traders said premiums, the surcharge for obtaining physical metal, would not drop much further.

LME regulations Asia has been particularly hard hit by a global collapse in premiums partly due to its proximity to China which has ramped up exports this year.

Supply has also flooded out after the London Metal Exchange forced warehousing companies to shorten delivery times, slashing historic queues that had inflated costs and angered consumers.

Premiums dip The sharp fall in premiums has also forced traders to dump stock to curb exposure to further losses, fuelling the downward spiral. Premiums were quoted at $100-110 on top of LME cash aluminium for in-warehouse Singapore this week, traders said, extending a slide from $150 a tonne two weeks ago, and down from more than $400 in December.

While signals are emerging that premiums in Europe may be stabilising, the process might take longer in Asia, traders said.

“In Asia it might take more time for the flux to settle, because there is too much stock here,” said a trader in Singapore.

China, the world’s top producer of refined metal, has ramped up exports of semi-manufactured products, a type of export that effectively sidesteps duties that apply to other shapes.

Dumping by traders Some shipments are then re-melted in countries like South Korea, which, traders say, is faced with stocks of nearly 0.5 million tonnes.

South Korea awarded May tenders at $135-145 premiums, down by more than a third from April.

“As far as premiums, I think there is a floor but there are a few traders just dumping,” said another trader in Singapore. “They want to get rid of their exposure at any cost.”

Financing deals The traders said warehouses were offering incentives or a discount on storage costs of around $70, while the gap between cash and forward prices could more than cover storage costs, making financing deals profitable again.

“With the spread the way it is you can make money right now. At $100, what’s the downside?,” the trader added.

“Some banks and trade houses, they are already in talks with some of the major suppliers to stock up.”

Chinese exports may fall The sharp drop in Asian premiums was also expected to blunt China’s exports for delivery from July, by cooling profits on exports, a Hong Kong-based merchant said.

“Maybe from July onwards, you will see some reduction on the export quantity.”

China’s exports grew 31 per cent to April from the same period of 2014.