TOKYO, Dec 14 (Reuters) - Most term premiums for primary aluminium shipments to Japan for the first quarter of next year were agreed at $112 to $113 per tonne, down from $116 to $118 set for the current quarter, traders said on Tuesday.
The January-March 2011 premiums marked the lowest in six quarters and a fourth straight quarterly drop, reflecting an uncertain outlook for Japanese domestic demand for aluminium, used in products ranging from computers to planes.
"Most of our deals were agreed at $112-$113, although we had hoped for a much lower level," said one end-user.
Some deals had already been agreed at $112 to $113 per tonne last week between Japanese buyers such as trading houses and aluminium mills and suppliers, including mining giants such as BHP Billiton and Alcoa Inc .
Japanese traders had expected premiums to fall below $110 due to the uncertain outlook for domestic demand.
"We have premiums at $112-$113 mostly, although the level was not satisfactory for us, as we think premiums below $100 reflect the real state of Japanese demand," another end-user said.
At the same time, there was also caution producers may not accept a big cut in premiums on the Japanese factor alone, citing inventories at London Metal Exchange warehouses tied up by financial deals and slowing flows of supply into the market, and also keeping premiums in Europe and the United States high.
An estimated two to three million tonnes of aluminium are held in unregistered inventories worldwide, the Chief Executive supply in the face of surging global demand, a top Alcoa official told the Financial Times in November.
Rio Tinto , the world's biggest aluminium producer, on Nov. 29 warned large inventories of aluminium amassed during the global financial crisis were weighing on the outlook for the commodity over the next few years.
Some Japanese traders said while domestic demand for aluminium was weak, as car production fell after the government in September ended subsidies for purchases of environmentally friendly cars, it was not as bad as they had expected.
"We have settled at $112.5 mostly, which is within our expectations," said a trader. "High European and U.S. premiums prevented suppliers from making a huge exception for Japanese buyers, but they also needed to consider how much Japanese buy. And domestic demand has not been as bad as thought to justify a much bigger decline in premiums," he said.
Japan, which must buy virtually all the metal it needs, imports about 2 million tonnes of primary aluminium every year.
An official at the Japan Aluminium Association said while use of the metal for auto industry has dropped, steady use for beverages cans and construction have helped offset that drop.
"But data for November may start to show a clearer picture of weakening demand," the official said.
Japanese shipments of aluminium products rose in October for an 11th straight month of year-on-year gains.
Term premiums for primary aluminium shipments to Japan have fallen about 13 percent through 2010, after hitting historic highs of $128-$130 in January-March.
The premiums are over the London Metal Exchange cash price, and include insurance and freight costs.