Japanese aluminium premiums likely to ease slightly in Q3

Reuters reported that premiums for primary aluminium shipments to Japan in July to September are expected to ease again after their first fall in a year for the current quarter but slowly rising demand could limit the size of the drop.

Buyers in Japan, which imports about 2 million tonnes of primary aluminium every year, said that the premium could ease to around USD 120 while others said a steady premium of around USD 125 could not be ruled out.

Aluminium term talks started this week between suppliers including mining giants such as BHP Billiton and Alcoa Inc and Japanese buyers such as trading houses and aluminium mills.

Japanese buyers will cite new sources of supply and a lack of strong Chinese demand unlike late in 2009 when the term premium shot up due to worries that UC RUSAL would not sell metal into Asia and China aggressively imported the metal.

An official at an end user said that new supplies are coming from the Middle East and supplies in the market are increasing, while the special factors that drove the premium up sharply were removed, making it natural that the premium normalizes and falls down to the level before the surge.

China's imports of primary aluminium were down 92% from a year earlier in April, making the country a net exporter of the metal for the first time since 2008; while RUSAL said last month it expected it would have metal to offer to Asia for Q3 and Q4 shipment. In addition, state owned Emirates Aluminium expects to hit its production target of 700,000 tonnes per year by December at its new Abu Dhabi aluminium smelter.

A second end user said that "Japanese are expecting lower levels, in a range of USD 5 to USD 10 down from the previous quarter but the Japanese environment also does not call for a sharp drop as demand has improved from year earlier levels and is solid currently. If a producer can shift its supply to Europe or the US from Asia, premiums may face upward pressure. But if a producer can't find an alternative consumer outside of Asia, such upward pressure may not be as strong.

Term premiums for primary aluminium shipments to Japan for April to June have mostly been agreed at USD 122 per tonne USD 124 per tonne. A deal around USD 115 per tonne to USD 120 per tonne for the Q3 would bring premiums down to levels agreed in the Q4 of 2009 but still above USD 75 for the Q3 last year.

Industry data showed that Japanese shipments of aluminium products rose 28.7% in April from a year earlier with a robust appetite in China and Southeast Asia bolstering demand. Aluminium is used in products ranging from computers to planes.

Industry sources said that Japanese consumers had aggressively drawn down inventories which had piled up during the economic slump to reduce storage costs and were now seeing some tightness in domestic supplies.