Tokyo (Platts)--27Mar2009
Robust Chinese demand could result in a supply shortage of base metals inAsia even as the rest of the world grapples with low demand, market sourcessaid this week. Japanese copper smelters producing a total 120,000 mt/month of coppercathode have sold out of April-May shipments. Two smelters producing20,000-40,000 mt/month each said they may be able to offer spot cargoes inJune. A third smelter, slightly larger than these two, has chalked up an evenmore impressive feat, selling out all shipments until September, varioussources said. However, a company spokesman refuted this to Platts. A Japanese trader, who competes with the third smelter for sales inChina, said the smelter had made a late entry into the Chinese market.It became noticeably active only in February but in the six weeks since, hassecured six months' worth of business. "It was a latecomer, but has been able to ride the wave immediately," thetrader said. A source at another smelter competing for Chinese business said his rivalhad no choice but to push for exports to China as it had weaker ties withJapanese cable makers and rolling mills than other smelters. A source engaged in sales at the third smelter, who declined to benamed, said exports had surged due to strong copper cable demand for power andcommunication infrastructure in China but added, "We may have pushed a littletoo hard to achieve sales." As copper supply in Japan becomes harder to secure, Japanese traders haveturned to Chilean producers, only to be told they are also sold out untilJuly. "In addition, South Korean, Taiwanese and other Asian consumers are alsocoming out to buy spot cargoes. They had cut back their contract purchases forthe current year and after the first quarter, now realize they cut too much,"the third Japanese smelter source said. Asia's copper market has tightened as a result, sources said. Premiumsfor Japanese copper for prompt shipment within 60 days have risen to $150/mtplus London Metal Exchange cash CIF Shanghai this month, from $80-100 mt/plusLME CIF Shanghai in February. There is no shortage yet, and no copper consumer in Asia has yet beenforced to curtail production of coils or cables due to a shortage of copperfeedstock, sources said. But if demand in recession-hit Japan does start to pick up unexpectedly,Asia may suffer shortages, impacting smaller consumers in particular that have no protection from long term contracts. Japan produced only 35,250 mt of rolled copper products in February, thelowest monthly total since January 1975, according to Japan Copper & BrassAssociation data. Association research analyst Tetsuji Tejima said output was expected tostay at a three decade low until at least April. Japanese smelter and tradesources said while they were hoping for an early recovery by Japaneseindustries, it would likely result in a shortage of copper. Japanese industry sources also hoped Asian copper smelters would scheduleannual plant maintenance later in the year, and that there are no shutdowns inthe meantime due to strikes or accidents. They are also on alert for signs the Chinese buying spree is starting toslow as London Metal Exchange copper prices rise on the back of the Chinesedemand. ALUMINIUM SHORTAGE IN SOUTH KOREA China, the world's largest producer of aluminium making 13 millionmt/year, has started to increase imports from this year as Shanghai FuturesExchange prices soar above LME prices, making imports cheaper. The SHFE pricesrose due to the purchase of metals by the Chinese stockpile authority in a bidto support the smelters hit by the global economic slowdown. The move as impacted South Korea, which consumes roughly 1 millionmt/year of primary aluminium. South Korean traders seeking spot Australian,Indonesian and Venezuelan cargoes as substitutes for Chinese aluminium areincreasingly finding themselves competing with their former suppliers forAustralian metals, and cargoes in short supply. One South Korean trader said he recently paid a premium of $85/mt plusLME cash CIF Incheon/Busan for several thousand tons of Good Western-gradealuminium to be delivered in under a month. The spot South Korean importpremiums have jumped $20/mt in March. The premiums for Chinese-origin aluminium are even higher, at $120/mt. South Korean rolling mills and extruders would not hesitate to pay higherpremiums to ensure production was not disrupted, South Korean traders said. If the Chinese buying spree continues, South Korean spot premiums forGood Western-grade aluminium could hit $100/mt CIF, one trader said. Asian traders are fixed on price moves on the SHFE, looking for any signthe Chinese buying spree is slowing down. What may have an impact is theChinese government announcing an export tax rebate hike for nonferrous metalproducts Wednesday.