Japanese aluminum buyers are waiting for a South African producer offer for the third quarter term premiums, with negotiations that started last week in Tokyo, market sources said Wednesday.

Platts could not immediately reach the South African producer. One global producer has offered $130/mt plus LME cash CIF Japan for P1020A ingot shipped in Q3, down from the $380/mt premiums for the current quarter. Another global producer offered $160/mt plus LME cash, CIF Japan, for ingot, alloys, billet and slab, also down from $380/mt for Q2.

Typically, Japanese buyers start to counter-bid after three major producers submit their offers. Some Japanese buyers have already told producers their Q3 expectations were less than $100/mt plus LME cash CIF Japan, possibly at $60-$80/mt.

Premiums below $80/mt would be the lowest since Q3 2009.

The is a wide gap between sellers and buyers, and there are no clear indications of the near-term market trend, Japanese buyers said. "The market is divided, and there is not much to say to each other but the outlook is uncertain, so no problem about negotiations proceeding slowly," said one Japanese trader.

Most Japanese buyers are seeking up to an 80% reduction in the Q3 premium from Q2, as domestic aluminum prices fell on port stocks of over 500,000 mt. But domestic spot trade was thin so far in the first week of the month compared to last week, with several buy tenders for Q3 or for the second half of the year.

Domestic prices have not bottomed out yet, said three Japanese traders, while one trader said Save aggressive sell-offs appear to have subsided. One Japanese trader reported a sale to an end-user this week for 300-500 mt at around Yen 230/kg ($1,854/mt) ex-main central Japan port warehouse, delivery within June, payment July.

The deal was on the basis of LME three-month price of $1,750/mt and an import premium of $79-80/mt, the trader said.

Platts has not been able to confirm the deal with the buyer. Another Japanese trader said he had sold several lots larger than 100 mt at Yen 235/kg, basis unknown, in central Japan this week, with import premiums of $80-90/mt.

Meanwhile, one overseas supplier pointed out that spot premiums were holding above $130/mt plus LME cash in the rest of Asia, and for this reason, he was not willing to sell at below $130/mt plus LME cash CIF to Japan.

Spot demand had picked up in Asia due to China exporting less remeltable semi-finished products on LME aluminum prices trading $200-$300/mt below Shanghai Futures Exchange contracts, sources agreed.

While some sources said the stable Asian premiums could underpin Japanese Q3 premiums, others disagreed.

"The global market is oversupplied. So the excess supply will make its way into the market one way or the other," said one Japanese consumer. Spot inquiries from end-users in Thailand and Vietnam have increased in the past two weeks.

One South Korean trader reported a sale of Middle East origin P1020 ingot at $145/mt plus LME cash CIF Bangkok to a Japanese buyer. Platts, however, could not obtain details such as volume and delivery conditions.

One global producer has reportedly offered $120/mt plus LME cash CIF Vietnam for Australian-origin material to a Vietnam-based end-user seeking 500-1,000 mt for July delivery, but Platts could not confirm details.

Malaysia's Press Metal suspension of output at the 320,000 mt/year Samalaju plant after the May 17 fire, had no visible impact so far, market sources agreed. One Japanese end-user with a plant in Malaysia said Press Metal continues to honor its delivery commitment.

The spread between LME and SHFE prices is another cause of uncertainty. SHFE front-month aluminum traded at around Yuan 13,015/mt ($2,126/mt) on Wednesday, and Tuesday's LME official settlement was at $1,711.50/mt.

If the spread was $100/mt wider, China is likely to import, tightening Asian supply and possibly preventing a further fall in the Japanese premiums, Japanese traders said.

"I could see a sales opportunity at LME holding at $1,600/mt or below, but LME is going back and forth $1,600/mt and $1,700/mt levels," said a Japanese trader.

A second Japanese trader said indicated sales interest at $100-150/mt plus LME price of around $1,600/mt, CIF Shanghai, but has not attracted buyers.