TOKYO, Dec. 8 -- Some term premiums for primary aluminum shipments to Japan for January-March were agreed at $112-$113 per tonne, a trader said on Wednesday, marking the lowest level in six quarters and the fourth straight quarterly drop.
Aluminum term talks began three weeks ago between Japanese buyers, such as trading houses and aluminum mills, and suppliers, including mining giants BHP Billiton (BHP.AX: Quote)(BLT.L: Quote) and Alcoa Inc (AA.N: Quote).
Term premiums to Japan have fallen about 13 percent after hitting historic highs of $128-$130 in January-March this year, and the deals struck so far for the first quarter next year represented a drop of about 4 percent from the $116-$118 agreed for the current quarter.
"We agreed on some of our deals for the first quarter at a slightly lower level from the previous quarter at around $112-$113," the trader said.
Many other traders said they were still waiting for suppliers' offers to come down from $113-$115 to around $110.
They had expected premiums to fall below $110 due to an uncertain outlook for domestic demand.
"The level is still high from our point of view, which is that demand in Japan is slack and premiums in other parts of Asia are generally weak," said one end-user.
Still, traders have also cautioned that high premiums in Europe and the United States would make suppliers reluctant to slash Japan-bound premiums even if physical supply of the metal in Asia was not tight, with production from the Middle East hitting the market and China seeing abundant domestic supply.
"Suppliers may also be split between those who can ship aluminum to Europe and those who can't. In the meantime, Japanese buyers are not in dire need of the metal. So, it's an issue of the overall balance," the trader said.
Some Japanese traders said they were not in a rush to settle as their current aluminum holdings allowed them to turn to the spot market to make up for any shortages of the material.
Japan, which must buy virtually all the metal it needs, imports about 2 million tonnes of primary aluminum every year.
The country's annual export growth slowed for an eighth straight month in October due to a stronger yen, and a central banker warned that major economies face growing downside risks, suggesting external demand could weaken further.
The premiums are over the London Metal Exchange cash price, and include insurance and freight costs.
While prospects for domestic demand for aluminum, used in products ranging from computers to planes, are growing uncertain, inventories at LME warehouses remain tied up by financial deals which have slowed flows of supply into the market.
"Aluminum is not in tight supply based on data, but actual availability is distorted by financing deals on LME warehouses or expectations for the launch of exchange-traded products backed by base metals such as copper and aluminum," said a commodities analyst at a Japanese research firm.