Japan 2Q Aluminum Premiums Seen Likely To Rise As Demand Picks Up

SINGAPORE, Feb 23, 2012 (Dow Jones) -- Japanese aluminum premiums for second-quarter shipment are likely to stage a modest recovery from their first-quarter levels due to slightly stronger domestic consumption, industry participants said Thursday.

Suppliers are expected to push for an increase from first-quarter charges of $112-$114 a metric ton when negotiations start next week, after the Japanese construction sector improved in recent months, participants said.

"Construction has been showing some recovery," a supplier who will be involved in the negotiations said.

But a sharp move higher is unlikely. Consumers maintain that continuing macroeconomic uncertainty in the euro zone is clouding the demand outlook for downstream products and that consumption elsewhere in Asia is weak.

"The producers are going to ask for a higher [premium], but consumers say the upside is limited. However, the minimum they [the consumers] will go for is a rollover; I don't think they'll ask for a decrease," the first supplier said.

Traders said an early offer from Rio Tinto Alcan to supply metal at a premium of $132/ton is ambitious given lackluster Japanese demand outside the construction sector.

"There's probably an argument for an increase, but not to that level," a Beijing-based analyst said.

A Rio Tinto representative didn't immediately respond to a request for comment.

Recent global production cutbacks by companies including Norsk Hydro(NHY.OS) and Alcoa (AA) could strengthen the producers' hands when talks begin, but the curbs have so far been too small to have a substantial impact on the physical aluminum market, the Beijing analyst said.

Three-month aluminum was trading around $2,280/ton on the London Metal Exchange at 0830 GMT, level with its previous settlement but 12.9% higher since the start of the year.

Prices have surged this year due to strong speculative interest amid sustained accommodative monetary policy in Europe and the U.S.