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PREVIEW-Japan Q3 Aluminium Premiums Likely to Ease Slightly
May 27,2010 14:18CST
industry news

TOKYO, May 27 -- Premiums for primary aluminium shipments to Japan in July-September are expected to ease again, after their first fall in a year for the current quarter, but slowly rising demand could limit the size of the drop.

Buyers in Japan, which imports about 2 million tonnes of primary aluminium every year, said the premium could ease to around $120, while others said a steady premium of around $125 could not be ruled out.

Aluminium term talks started this week between suppliers, including mining giants such as BHP Billiton <BHP.AX><BLT.L> and Alcoa Inc <AA.N>, and Japanese buyers such as trading houses and aluminium mills.

Japanese buyers will cite new sources of supply and a lack of strong Chinese demand -- unlike late in 2009 when the term premium shot up due to worries that UC RUSAL would not sell metal into Asia and China aggressively imported the metal.

"New supplies are coming from the Middle East and supplies in the market are increasing, while the special factors that drove the premium up sharply were removed, making it natural that the premium normalises and falls down to the level before the surge," said an official at an end-user.

China's imports of primary aluminium were down 92 percent from a year earlier in April, making the country a net exporter of the metal for the first time since 2008, while RUSAL said last month it expected it would have metal to offer to Asia for third- and fourth-quarter shipment.

In addition, state-owned Emirates Aluminium expects to hit its production target of 700,000 tonnes per year by December at its new Abu Dhabi aluminium smelter.

"Japanese are expecting lower levels, in a range of $5-$10 down from the previous quarter, but the Japanese environment also does not call for a sharp drop as demand has improved from year-earlier levels and is solid currently," said a second end-user directly involved in the talks.

"If a producer can shift its supply to Europe or the U.S. from Asia, premiums may face upward pressure. But if a producer can't find an alternative consumer outside of Asia, such upward pressure may not be as strong," the second end-user said.

Term premiums for primary aluminium shipments to Japan for April-June have mostly been agreed at $122-$124 per tonne. A deal around $115-$120 for the third quarter would bring premiums down to levels agreed in the fourth quarter of 2009, but still above $75 for the third quarter last year.

Japanese shipments of aluminium products rose 28.7 percent in April from a year earlier, industry data showed, with a robust appetite in China and Southeast Asia bolstering demand. Aluminium is used in products ranging from computers to planes.

Industry sources said Japanese consumers had aggressively drawn down inventories which had piled up during the economic slump to reduce storage costs, and were now seeing some tightness in domestic supplies.

On top of Japan's improving demand, producers will focus on structural factors slowing the flow of the metal to the market, such as the ongoing buildup in inventories at London Metal Exchange warehouses tied up by financial deals, and firmer premiums in Europe and the United States.

"If new suppliers launch an aggressive sales pitch it may help lower the premium," a trading house official said.

Premiums are charges paid by the consumer, on top of the London Metal Exchange cash price <MAL0>, to cover the costs of shipping and delivering the metal.

Spot aluminium is being offered at premiums of $105-$115 to South Korea, around $110 to Hong Kong and China, the world's top consumer and producer of the metal, and $120 to Japan, all on a CIF basis, traders said. Spot premiums were around $130 in January to most Asian destinations.



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