China importers postpone aluminium buying as premiums fall

Chinese buyers of primary aluminium are reluctant to book imports for the second quarter as they hold limited cash and as falling premiums prompt them to postpone purchases, traders and industry sources said.

While China is the world's top producer of aluminium, some end users buy the metal abroad under a rule that allows them to import duty free as long as products made from the cargoes are shipped overseas.

Imports usually pick up after holidays for the Lunar New Year, which this year came in February, but buying has been weaker than expected this month, sources said.

Reduced buying will likely pile more pressure on premiums for primary aluminium ingots in Asia. Premiums, the surcharge paid by buyers on top of the London Metal Exchange cash price to obtain prompt delivery, have fallen in the global market in the first quarter from record highs, with some analysts predicting further drops.

"Demand from clients (in China) for the second quarter is weaker than we had expected," said a trader at a global producer of primary aluminium, declining to be identified as he was not authorised to speak with media.

"The biggest problem is that the market (premium) is falling. People don't want to commit now."

Factories still appear to have limited cash to buy aluminium despite recent measures by Beijing to boost liquidity, traders said.

An executive at a manufacturer of semi-finished aluminium products in the southern province of Guangdong said a weak Chinese property market had reduced cash at factories that produce aluminium profiles, used in the construction sector.

Traders said some global aluminium suppliers were keen to sell as they fretted that premiums could fall further, offering large buyers premiums of about $300 a tonne for China, a fifth lower than January.

An investor was trying to liquidate around 40,000 tonnes of aluminium ingots in bonded warehouse in Shanghai, offering a premium of about $300 for the stock, traders said.

"We have received calls from sellers every week recently," said the manufacturing executive, whose firm imports aluminium for its own consumption and trading. He added that the company would buy at about a $280 premium, on a cost, insurance and freight basis.