Japan Aluminum Fee May Climb to 14-Year High as Supplies Cut

TOKYO, Aug. 20 -- Japan, Asia's second-largest aluminum importer, may pay the highest fee in 14 years to suppliers from October as reduced shipments from Russia and increased purchases by China boost prices.

    The premium may climb at least 33 percent to more than $100 a metric ton over the London Metal Exchange cash price in the three months to Dec. 31, four executives said before pricing talks starting next week. The fee would be the highest since buyers began purchasing most requirements through long-term contracts in 1996, said the people, who declined to be identified as the negotiations are private.

    Aluminum, used in homes and cars, climbed 27 percent this year, reaching the highest level since November, on signs the global economy is recovering, boosting demand for industrial metals. Increased premiums may boost costs for fabricators such as Furukawa-Sky Aluminum Corp. and Kobe Steel Ltd. and may erode earnings of end-users including vehicle makers.

    "Aluminum demand is improving, led by the auto and electronics industries, but a steep increase in purchasing costs may slow a recovery as fabricators will have difficulty passing on higher raw material prices to customers," said Kunio Ishikawa, director at the Japan Aluminium Association.

    Japan's economy expanded 3.7 percent in the three months to June 30 after declining 11.7 percent in the first quarter, the Cabinet Office said Aug. 17.

    Fee Gains

    The premium is applied to so-called Good Western-grade ingot imported by Japanese mills and includes freight and insurance costs. The fee rose as high as $75 a ton this quarter, the first gain in a year, after dropping to between $55 and $58 a ton in January to March, the lowest level since 2004.

    Aluminum for delivery in three months on the LME gained 0.3 percent to $1,956 a metric ton at 12:54 p.m. in Tokyo. The metal touched a seven-year low of $1,279 a ton on Feb. 24.

    Japan's imports of refined aluminum from Russia fell 46 percent to 117,339 tons in the six months ended June 30, from a year earlier, according to the Ministry of Finance. The country's total imports were 601,278 tons.

    China's purchases of refined aluminum soared 1,565 percent to 1 million tons in the first six months, reducing supply in the Asia, as a 4 trillion yuan ($585 billion) stimulus program boosted demand and the government stockpiled metal.

    Output by United Co. Rusal, the world's biggest aluminum producer, fell 10 percent in the first half to 1.98 million tons as the company joined Alcoa Inc. and Rio Tinto Group in reducing production to curb a slump in prices.

    Rusal Shipments

    Rusal halted some Japanese deliveries this quarter after agreeing in June to sell as much as 1 million tons to Glencore International AG, the Swiss commodities trader that owns 9.7 percent of the Moscow-based company, Dow Jones reported June 16.

    Shipments from Russia may be affected by an accident that shut Russia's largest hydroelectric power plant this month, reducing electricity supply to Rusal's plants. The company may lose at least 500,000 tons of output after the accident, Artem Volynets, Rusal's director of strategy, said Aug. 17.

    Scarce Asian supplies spurred buyers to increase purchases from smelters in Australia, South America and Africa, boosting the premium for Good Western metal.

    Demand in Japan improved as government incentives boosted sales of hybrid cars and electric appliances that consume less electricity. The country's shipments of aluminum rolled products dropped at the slowest pace in seven months in June.

    Aluminum stockpiles in Yokohama, Nagoya and Osaka ports fell to 174,200 tons at the end of July, according to Japanese trading house Marubeni Corp. That was the lowest level since the company began compiling data in June 1995.

    (Source: Bloomberg)