Negotiations have entered a period of stagnation and Japan's quarterly aluminum price benchmark system has been shelved again.

SMM7, March 7: recently, Japan's quarterly aluminum contract premium negotiations, which traditionally set the benchmark for trade in the Asian market, have come under pressure again as third-quarter negotiations have not yet taken place at the end of the second quarter.

Sources said the delay in settlement in the third quarter was mainly due to the large gap between the buying price and the selling price during most of the negotiations so far.

Demand in Japan has been hit hard by the coronavirus pandemic, and there is a lot of talk about canceling or reducing demand in the third quarter. Producers have been reluctant to lower their bids because recent arbitrage opportunities in China have increased demand and because premiums to China are much higher than those to Japan.

Since the start of negotiations in the third quarter, there has been only one deal priced at $85 a tonne. During the negotiations, producers mostly kept their quotations at $82-$85 a tonne, while potential buyers insisted on around $75 a tonne. This week, the spread has narrowed to $79 a tonne, compared with an offer of $80 a tonne, but no new deal has been reported.

It is reported that the premium for shipments to China in July is $110 / mt CIF or more.

But market participants expressed concern that the third-quarter premium might not reflect market levels if enough deals were not reached. Delays in quarterly settlement may also affect other contracts related to this benchmark.

Japanese traders say Japan has traditionally valued long-term relationships and stability with producers, so they are willing to pay a higher premium. However, traders have seen more spot supply this year, and the spot market is becoming more and more important due to market volatility, perhaps over time, the market usually cancels quarterly or long-term contracts.

Historically, four Western producers, Alcoa (Alcoa), Rio Tinto (Rio Tinto), South32 and Rusal (Rusal) and 15Mel, 20 Japanese buyers have been involved in negotiating quarterly term contract premiums for these annual fixed number of long-term supply agreements.

Volatility in spot prices and tensions in negotiations have also led to similar pressure on other commodities in the metal industry in recent years in long-term contract fixed price negotiations, including iron ore in 2009 and coking coal in 2012. Instead of using fixed prices, these commodities eventually adopt a formula that represents the monthly or quarterly average of the spot price index because they are considered to be more representative of market value and fundamentals. In recent years, the TC / RC negotiation of copper concentrate is also faced with similar challenges.

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