Some traders in Asia are closely monitoring the spread between Shanghai Futures Exchange and London Metal Exchange aluminum contract prices, as a wider spread may see more of the metal head to China.

Front-month SHFE June aluminum traded at Yuan 13,150-Yuan 13,160 ($2,152-$2,153)/mt Tuesday, while the most recent LME settlement on May 22 was $1,726/mt.

Platts assessed spot Chinese import premium for Western grade aluminum at $150-$200/mt Monday.

On the basis of LME at $1,726/mt, the $175/mt import premium, port handling charges of Yuan 100/mt and China's value added tax of 17%, the Chinese import price is equivalent to Yuan 13,689/mt -- higher than the traded level for SHFE June aluminum contract, Platts calculation shows.

But should SHFE/LME spread widen by $50-$100/mt, traders may seek to sell in China, said two Japanese traders and one South Korean trader.

It is not a major opportunity but a small chance, the traders added.

In China, domestic demand remains dull. Chinese traders are not actively reaching out to imports as before because of restrictions in financing using commodities as a loan collateral, and they are likely to wait until Japanese buyers conclude their third-quarter contract premium negotiations, they said.

One Asian trader said his company had indicated sales interest at $170/mt plus LME cash CIF Shanghai to Chinese buyers late last week, for possibly lots of 500 mt or above, but has not been able to attract buyers, he said.

"Arbitrage window is a good news, for producers, as well as to traders," said one global producer source, who will be negotiating Q3 contract premiums with Japanese buyers in the coming days.

Chinese import appetite may help draw down aluminum stockpiles in South Korea and Japan, stemming the fall in premiums, traders added.

Even if China ends up not importing at all, a wider spread will still help lend a floor to premiums as lower international benchmark LME against domestic SHFE will discourage China from exporting bars, rods, alloys, and other semi-finished products, said one Japanese consumer.

China on May 1 had removed export taxes on aluminum bars, rods and some alloys -- paving the way for more exports.

Aluminum premiums have been on a downtrend due to high stocks amid higher exports from China since Q4 2014.

Meanwhile, negotiations between Japanese buyers and overseas suppliers for Q3 premiums are moving slowly, as producers have not placed their offers, Japanese buyers said.

Platts assessed Japanese spot import premiums at $110-$130/mt plus LME cash CIF Japan Tuesday, unchanged since May 20, due to absence of deals, offers or bids reported by two overseas sellers and three Japanese buyers contacted.