By Angus Chuang
TAIPEI, July 24 (Reuters) - Taiwan's aluminium market was seeing a supply shortage as downstream clients replenished stocks ahead of the island's peak manufacturing period in the second half of the year.
Traders said on Wednesday that there had been talk some suppliers were delaying shipments to long-term customers or turning down requests to increase contract volume, reflecting supply difficulties faced by producers and trading houses.
"This is a rare phenomenon. No metal is available in the spot market," said one trader at a domestic non-ferrous metals trading firm.
Taiwan's physical aluminium trade is usually subdued after buyers seal term-supply contract for second-half delivery by the end of June, but traders said they have seen active inquiries ever since and premium offers were on the rise.
"The supply tightness will only worsen rather than ease in the near term as people tend to chase highs but not chase lows," she added.
Spot aluminium premiums were quoted this week at above US$60 per tonne over London Metal Exchange (LME) cash price, up from $55-$60 in late June, defying expectations of softer premiums after importers secured long-term supply contracts.
Taiwan buyers, who rely completely on imports for primary aluminium ingots, set premiums with suppliers last month for second-half shipments at $52-$53, $10 higher than the previous six months.
SHIPMENT DELAY
The supply tightness has also spread to trading houses which saw shipment delays from producers of the light metal widely used in automobiles and home appliances.
"We can hardly ship the metal in accordance with clients' timetable recently as shipments from our suppliers fall behind schedule," said another trader with a Japanese trading company.
The trader said shipment postponement was partly due to higher prices in the United States and Europe, and a pick-up in demand in other east Asian countries.
Reflecting improving demand, spot aluminium premiums in Japan have rebounded to their highest levels in more than a year as supply tightens thanks to an export-led recovery in industrial sectors such as cars and electronics manufacturing.
They said a build-up of inventory by Taiwan manufacturers, who were increasing stocks to more than one month of usage from less than 15 days in preparation for the peak production period, also contributed to the supply shortfall.
The second half is Taiwan's annual peak manufacturing period as exporters fill orders to meet year-end holiday demand from key markets in Europe, Japan and the United States.
The economics ministry said on Tuesday Taiwan's industrial output, an indicator of manufacturing activity, was expected to pick up the pace in the second half with about six percent year-on-year growth against 4.8 percent in the first six months.