Most Japan 2Q Aluminum Premiums Settled At $115-127/Ton -Suppliers

SINGAPORE Mar 21, 2012 (Dow Jones) -- Most Japanese aluminum premiums for the second quarter have settled in a wide range amid sharply divergent views of the market from consumers and suppliers.

Suppliers and consumers have agreed to premiums between $115 a metric ton and $127/ton to three-month London Metal Exchange aluminum compared with premiums of $112-$114/ton for the January-March quarter, two suppliers with knowledge of the talks told Dow Jones Newswires.

Negotiations, which were supposed to end last week, dragged on longer than usual, with some producers holding out for higher levels, citing strong premiums in the U.S. and Europe as well as tightening supply in Asia.

"European and U.S. [premiums] are incredibly high, so I can't see the pressure on Asian premiums to rise further stopping anytime soon," a supplier to the Japanese market said.

But some consumers have been reluctant to accept the higher charges, saying Japanese demand is soft. The construction sector has picked up slightly since the start of the year, but other downstream markets remain weak.

"These are the longest negotiations there have ever been," a second supplier to the Japanese market said.

One producer agreed to contracts at $115/ton early in negotiations, but the majority of suppliers have sold above $120/ton. Smaller volumes have been agreed upon above $125/ton, suppliers said.

Asian supply has tightened since the start of the year, even as consumption rates remain low, as market participants continue to move large tonnages of aluminum into financing deals.

These deals became a major feature of the market when demand fell during the 2008-2009 financial crisis. Producers struck deals with investors, traders and banks by pledging metal to raise cash. With demand weak, storage costs low due to low interest rates and forward LME prices trading at a premium to prompt contracts, the deals are once again proving popular.

The high level of canceled warrants in LME warehouses is indicative of large volumes of aluminum on the move between terminals as market participants seek out the best rent deals.

Canceled warrants--a proxy for metal about to leave warehouses--stand at 32.65% of total stock compared with 13.33% at the start of the year.

Three-month aluminum is trading around $2,216/ton, up $7 from its previous settlement and 9.7% higher since the start of the year.