JAPAN ALUMINUM: Spot trade thin amid delay in LME warehouse process reform

Spot imports of primary aluminum ingot into Japan were thin this week as buyers were waiting to see the impact from the postponment of LME's new warehouse process rules, Japanese market sources said Wednesday.

Trade was thin also due to some market participants focusing on finalizing second-quarter supply contracts. Q2 ingot premiums were set at $365-367/mt plus London Metal Exchange cash, CIF Japan, up from Q1, according to Platts assessments.

Market participants were monitoring the possible impact of LME postponing its April 1 implementation of warehouse process reforms, following the English High Court ruling last month that the LME consultation on the reform proposal was flawed.

Following a six-month consultation period, last November, the exchange introduced a package of warehouse reforms -- due to take effect from April 1 this year -- to address the issue of queues to get metal delivered out of warehouses. Among a raft of measures, the key change is an amendment to LME warehouse regulations to calibrate delivery-out rates with delivery-in rates at warehouses where the queue to deliver out metal stretches to more than 50 days.

"In theory, this would limit the metal flow from warehouses to the market, and premiums would rise. The contango spread [between LME cash and forward months] remains wide so there is less reason for metal holders to sell the metal [in the prompt market]," said one Japanese trader.

So far, the Japanese spot market has remained still.

"The LME three-months were up [to $1,785/mt Tuesday compared to below the $1,750/mt levels in March] and the yen has weakened, increasing Japanese buyers purchase costs, so buyers are just watching," said a second trader.

Inquiries so far this week have been limited to a handful of local consumers buying on fixed schedules, traders added.

One canmaker is expected to close a buy tender that is held every Wednesday.

Even if there were inquiries, one producer said he had no spot cargo to offer.

"All [four main] producers said they have sold out their cargoes ... and if they were to offer, their offers would be all over the place so it would be hard to make an estimate on where the spot premiums stand," said a third Japanese trader.

Due to absence of deals, firm offers or bids reported, the Platts spot premium was assessed Wednesday at $365-367/mt plus LME cash CIF Japan, unchanged from March 31.

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