OREANDA-NEWS. South Korea has paid the smallest premium in more than a year to source aluminium, the results of a tender showed on Wednesday, the latest sign of intensifying pressure on premiums that is putting the operations of global producers under threat.

South Korea bought 1,000 tonnes of aluminium to be sourced from India and another 1,000 tonnes from Australia for May 24 shipment via two tenders closed on Tuesday, the state-run Public Procurement Service said on its website (www.g2b.go.kr).

K Commodity Co Ltd won both bids by offering to accept premiums of \$330 per tonne, CIF Incheon, over London Metal Exchange (LME) prices. The drop in premiums is likely to boost headwinds for aluminium producers, who receive the delivery surcharge on top of LME cash prices.

The drop represents a 7 percent fall from a \$355 tender announced on Feb. 26, and is the lowest premium paid by PPS in more than a year, according to Reuters data.

It comes as premiums worldwide crumble after LME announced fresh measures to overhaul its warehousing system and as Chinese product exports swamp the local market.

Major producer Alcoa warned it may reduce smelting capacity last week, in the first concrete sign that lower delivery premiums for aluminium are threatening producers amid weak futures prices.

The LME announced new rules and proposals last week aimed at slashing delivery backlogs at its global network of warehouses twice as quickly as under current reforms.

The move is part of a wide-ranging restructure sparked by consumer complaints about long delays to obtain aluminium from storage and lawsuits accusing banks and commodity companies of conspiring to restrict supply through the warehouse network.

Reflecting pressure on the regional Asian benchmark, premiums have dropped sharply in early deals, in quarterly aluminium premiums talks, underway in Japan. Premiums fell 11 percent to \$380 per tonne for metal to be shipped in the April-June period.

China's exports of aluminium products grew about 19 percent last year, a trend expected to continue in 2015, given low local prices compared to international markets.