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Listen: CIF Japan aluminum premium slips as US eases sanctions on Rusal

Spot aluminum premiums have slipped from last week's near three-year high of $180/mt-$195/mt CIF Japan, after the US eased sanctions against leading Russian producer Rusal.

In this podcast, S&P Global Platts editors Mayumi Watanabe and YuenCheng Mok examine the market's reaction to the US Treasury announcement on the Russia sanction, China's potential advantage under current market conditions, and market participants' outlook over the near term.

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Podcast Transcript

CIF Japan aluminum premium slips as US eases sanctions on Rusal

With Mayumi Watanabe and YuenCheng Mok

YuenCheng Mok: Welcome to the latest edition of S&P Global Platts Commodities Spotlight podcast.

I'm YuenCheng Mok, senior managing editor for metals in Asia, and joining me today is Mayumi Watanabe, senior editor for metals in the region, who covers the Japan aluminum market, assessing the Japan spot aluminum benchmark premiums.

The Japan spot premiums have fallen back this week to $160-175/mt on April 23, after reaching a 3-year high on the Platts index, as the US sanctions against leading Russian producer Rusal developed further.

Mayumi, so what’s your take on aluminum currently, following the US Treasury announcement this week?

Mayumi Watanabe: There is definitely a pickup in trades for smaller volumes. The lower LME prices are encouraging buyers. But seaborne trades for larger volumes and across national boundaries are lackluster. Market participants continue to seek clarity over the US Treasury announcement on April 23. What does it mean by, the US will not impose secondary sanctions? And what are the terms of the General License 14 that authorizes dealings with Rusal? Furthermore, will this affect the US decision on tariff exemptions, which will expire on May 1?

While upside in the premium may be limited, Rusal is still on the sanction list, and the market is still difficult to read.

YM: Interesting, and how has the Japanese spot premium been impacted?

MW: After having fallen 10% from last week to $160-$175/mt CIF Japan on April 23, the premium remains unchanged on April 24.

LME prices seem to be falling to pre-sanctions level of around $2,100. Lower LME may mean the China export arbitrage shrinking. How is the Chinese market reacting to this Cheng?

YM: Well, China is always keen to export aluminum if feasible, but it all depends on prices, since there’s a 15% export tax on primary metal.

When LME reached a 7-year high last week to more than $2,600/mt, a lot of Chinese started doing the math, and some said if it goes up to near $3,000, then exports will be worthwhile even with the tax.

At that time, I think domestic prices were much lower in comparison. The Shanghai Futures Exchange aluminum broke above 15,000 yuan just for a day last week, and if you convert that, that’s still a gap of about more than $800 versus the LME.

But then again, even if prices reach a suitable level, the main concern is still government policies.

The Chinese government put in all that effort last year to cut capacity and output to reduce pollution. So will they easily allow exports now? If that happens, there might be a rush of restarts and increased output from smelters again, and all the efforts in the past year and more to control and curb capacity will be wasted. So most Chinese thinks if exports pick up, it’s likely the state will step in as well.

In any case, LME just fell back again this week as the sanctions eased on Rusal, so now the Chinese are waiting for clearer direction again.

Coming back to Japan, we’ve heard talks earlier that the Japanese were keen to buy Chinese metal as well, even with the 15% tax, as they were worried about the lack of Russian supply.

Is that still the case now? And how does it look in the near term?

MW: Well Cheng, China so far falls as the last resort among many alternative supply options for Japanese buyers. Buyers’ preferences are Southeast Asia including LME warehouses, and India, and China, in this order. But having experienced the sanctions impact, there will be more Japanese end-users testing Chinese supplies so that they will have something to fall back on, in emergencies.

Possible geopolitical incidents include ships not allowed to travel across regions, or banned entry at ports.

In the near term to May 1, the market is expecting a downward correction to off-set the previous reaction to the US sanctions.

The pre-sanctions premium was around $150 and a lot of market participants say the premium may fall back to this level. But as long as risk control remains the top priority for every market participant, buyers will not always buy lower, and sellers will not always sell higher, not all the time. I have noticed that more time is spent among market participants discussing general terms and conditions on contracts rather than prices, and this is contributing to poor visibility in the market. It only contributes to the fact that it’s becoming more difficult to read on a day to day basis.

YM: Thank you very much Mayumi, and thanks everyone for listening in.