Tokyo (Platts)--27Mar2009

Robust Chinese demand could result in a supply shortage of base metals in
Asia even as the rest of the world grapples with low demand, market sources
said this week.
Japanese copper smelters producing a total 120,000 mt/month of copper
cathode have sold out of April-May shipments. Two smelters producing
20,000-40,000 mt/month each said they may be able to offer spot cargoes in
June.
A third smelter, slightly larger than these two, has chalked up an even
more impressive feat, selling out all shipments until September, various
sources said. However, a company spokesman refuted this to Platts.
A Japanese trader, who competes with the third smelter for sales in
China, 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, has
secured six months' worth of business.
"It was a latecomer, but has been able to ride the wave immediately," the
trader said.
A source at another smelter competing for Chinese business said his rival
had no choice but to push for exports to China as it had weaker ties with
Japanese cable makers and rolling mills than other smelters.
A source engaged in sales at the third smelter, who declined to be
named, said exports had surged due to strong copper cable demand for power and
communication infrastructure in China but added, "We may have pushed a little
too hard to achieve sales."
As copper supply in Japan becomes harder to secure, Japanese traders have
turned to Chilean producers, only to be told they are also sold out until
July.
"In addition, South Korean, Taiwanese and other Asian consumers are also
coming out to buy spot cargoes. They had cut back their contract purchases for
the 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. Premiums
for Japanese copper for prompt shipment within 60 days have risen to $150/mt
plus London Metal Exchange cash CIF Shanghai this month, from $80-100 mt/plus
LME CIF Shanghai in February.
There is no shortage yet, and no copper consumer in Asia has yet been
forced to curtail production of coils or cables due to a shortage of copper
feedstock, 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, the
lowest monthly total since January 1975, according to Japan Copper & Brass
Association data.
Association research analyst Tetsuji Tejima said output was expected to
stay at a three decade low until at least April. Japanese smelter and trade
sources said while they were hoping for an early recovery by Japanese
industries, it would likely result in a shortage of copper.
Japanese industry sources also hoped Asian copper smelters would schedule
annual plant maintenance later in the year, and that there are no shutdowns in
the meantime due to strikes or accidents.
They are also on alert for signs the Chinese buying spree is starting to
slow as London Metal Exchange copper prices rise on the back of the Chinese
demand.

ALUMINIUM SHORTAGE IN SOUTH KOREA
China, the world's largest producer of aluminium making 13 million
mt/year, has started to increase imports from this year as Shanghai Futures
Exchange prices soar above LME prices, making imports cheaper. The SHFE prices
rose due to the purchase of metals by the Chinese stockpile authority in a bid
to support the smelters hit by the global economic slowdown.
The move as impacted South Korea, which consumes roughly 1 million
mt/year of primary aluminium. South Korean traders seeking spot Australian,
Indonesian and Venezuelan cargoes as substitutes for Chinese aluminium are
increasingly finding themselves competing with their former suppliers for
Australian metals, and cargoes in short supply.
One South Korean trader said he recently paid a premium of $85/mt plus
LME cash CIF Incheon/Busan for several thousand tons of Good Western-grade
aluminium to be delivered in under a month. The spot South Korean import
premiums 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 higher
premiums to ensure production was not disrupted, South Korean traders said.
If the Chinese buying spree continues, South Korean spot premiums for
Good Western-grade aluminium could hit $100/mt CIF, one trader said.
Asian traders are fixed on price moves on the SHFE, looking for any sign
the Chinese buying spree is slowing down. What may have an impact is the
Chinese government announcing an export tax rebate hike for nonferrous metal
products Wednesday.
But if China's metal appetite were to subside suddenly, prices could
plummet, and traders would have to overhaul their operations entirely to
survive in a market weighed by excess supply rather than the risk of shortage.

--Mayumi Watanabe, mayumi_watanabe@platts.com