TOKYO, Nov 22 （Reuters） - Premiums for primary aluminium shipments to Japan in January-March will likely drop to their lowest in six quarters, as buyers remain wary of the economic outlook, with the yen's rise to a 15-year high hitting exporters.
Aluminium term talks start this week between Japanese buyers such as trading houses and aluminium mills and suppliers, including mining giants such as BHP Billiton （BHP.AX: Quote）（BLT.L: Quote） and Alcoa Inc （AA.N: Quote）.
Term premiums for October-December shipments were agreed at $116-$118, but buyers expect them to drop about $10 to below $110 in the first quarter of next year.
Quarterly premiums below $115 would be the lowest since $75 agreed in the third quarter of 2009.
"Deepening uncertainty over Japan's demand for aluminium for the coming year is common knowledge among overseas suppliers, with the possibility of a drop in contract volumes," said an end-user.
"Spot premiums on deals with domestic traders have been soft, so I expect quarterly premiums to fall below $110," he said.
The premiums are over the London Metal Exchange cash price, and include insurance and freight costs.
Japan imports about 2 million tonnes every year of primary aluminium, widely used in products ranging from computers, electronics to the food sector.
"Premiums are definitely on a downtrend and we expect a drop of about $10 from the current quarter to below $110, mainly due to uncertainty over the Japanese economy," a trader said.
"We are also not hearing premiums in Asia are rising, despite the general robustness in the Asian economy," the trader said.
Suppliers are offering good-quality Western aluminium ingots, typically referred to non-Asian and non-Russian suppliers, at term premiums of $98-$110 a tonne over London Metal Exchange prices MAL3 MAL0 for delivery in 2011 to buyers in Hong Kong and China, according to buyer and seller sources.
SUPPLY SEEN UP
Aluminium stocks at key Japanese ports remained at a relatively neutral level of 225,800 tonnes at the end of October.
Analysts estimate world aluminium production will rise about 6 percent to 44.2 million tonnes in 2011 from 41.6 million tonnes this year.
The yen's sharp rise against the dollar has weighed heavily on business sentiment and resulted in cautious investments amid strong deflationary pressures, while the effects of government stimulus are fading.
The yen set 15-year highs against the dollar of 80.21 yen in early November but has since has edged back and stood at 83.40 yen JPY= on Monday.
Japan's economic growth accelerated in the third quarter as expiring government incentives gave consumption a boost, but many analysts expect the economy to stall or even contract slightly in the next two quarters.
Japanese shipments of aluminium products rose in September for the 10th consecutive month of year-on-year growth, boosted by demand for cans used for drinks and use in cars.
But the end of government subsidies for purchases of low-emission cars in September has weighed on output, deepening the outlook for aluminium demand for automobiles. （Editing by Michael Watson）
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