HONG KONG, Feb 17 (Reuters) - A recent surge in imports of primary aluminum by China, the world's top producer and consumer of the metal, could hit a wall in April as weak domestic prices drive traders to cut new orders for spot metal, trading sources said on Friday.
Slowing global economic growth has cut demand for Chinese goods, piling on the pressure for the world aluminum market, which is already facing a problem of oversupply.
In China, investors, merchants and fabricators who use the metal to make semi-finished products stepped up bookings of primary aluminum in late November and December, lured by an attractive arbitrage, or price differential, between London Metal Exchange prices and Chinese prices AL-A00-CCNMM, that had not been seen since 2009.
The bulk of that booked metal was scheduled to arrive in China between December and early March, traders said.
Those bookings boosted arrivals of primary aluminum to a 25-month high of 50,943 tonnes in December versus average imports of less than 20,000 tonnes per month in 2010 and 2011.
January imports of primary aluminum will be announced next week, but last week's data for total imports, including primary aluminum, alloy and semi-finished products, showed a fall of 11.2 percent from December as the Lunar New Year holiday slowed trade.
Traders said importers have placed few orders for spot aluminum imports in the past few weeks as LME prices rose.
"The April imports should be returning to the normal low levels," said a trader at an international trading house.
The lower levels of imports may last until the summer months of July and August when demand for power runs high, forcing some energy-hungry Chinese aluminum producers to cut production.
Benchmark three-month London Metal Exchange aluminum prices have risen 8.2 percent so far this year to stand at $2,185 on Friday but the price was 35 percent lower than a record of $3,380 in July 2008.
A global supply glut has hurt prices and some analysts expect excess capacity in aluminum smelting to drag on for years to come, spurring producers such as Rio Tinto , Alcoa and Norsk Hydro, to cut production.
The world's top aluminum producer, RUSAL Plc, which may cut output 6 percent in the next 18 months, estimates ex-China producers will cut 2.7 million tonnes and China will cut 1.2 million tonnes this year.
Primary aluminum demand in China has been weak after the new year break, as many aluminum product plants in the southern province of Guangdong and some eastern coastal areas have not yet resumed full production, because of a fall-off in export orders and a lack of workers. Weak demand has been weighing on prices.
The third-month aluminum contract of the Shanghai Futures Exchange has gained just 2 percent so far this year to end Friday at 16,175 yuan ($2,600) a tonne. The price was down 13 percent from a multi-year high of 18,645 yuan in August 2011, the highest level since at least 2009.
Traders said weak Chinese prices had prompted some investors and merchants to store some imported aluminum in bonded warehouses, where the metal has not been assessed for China's 17 percent value-added tax.
A small amount of bonded stocks in Guangdong had been resold at low premiums of around $80 a tonne over cash LME prices, versus premiums of about $110 that importers paid in December.
Despite the weak appetite for fresh imports, overseas suppliers were offering firm premiums to the Chinese for spot good-Western aluminum at about $105-$125 a tonne versus around $105-$115 two months earlier, because of limited availability.
Traders said international trading houses and investment funds had been keen to buy aluminum and store the metal in warehouses to wait for higher premiums or earn spreads between cash and forward LME prices.
On Friday, three-month LME aluminum prices stood just over $40 higher than cash LME prices. ($1=6.3016 yuan)