Japan Q3 aluminium premiums at record high around $200-$210

　　Japanese aluminium buyers, the world's biggest importers of the metal, locked up third-quarter supply deals mostly at a physical premium of $200-$210 per tonne, a record high, after global smelters cut output, four sources directly involved in the talks said.

　　The premiums for July-September, which act as a benchmark for Asia, represent a jump of up to 70 percent from the $121-122 paid over the London Metal Exchange cash price in the current quarter, the steepest-ever quarter-on-quarter rise.

　　An acute shortage of supply prompted buyers to speed up settlements, said the sources, as producers cut back output, while demand from the financial sector remained strong, reducing supply of accessible metals for manufacturers.

　　"As we needed to secure volumes, the deals were done much quicker this time than the preceding quarter," said one trader, who asked not to be identified because fees are not made public.

　　"Because four or five major producers dominate the global market, we have no means to counter their offers," said another trader.

　　The biggest suppliers of Western ingot to Japan include Rio Tinto, BHP Billiton, Alcoa Inc and Norsk Hydro.

　　The rises come as domestic demand shows signs of recovery but still remains tepid. After last year's devastating tsunami and flooding in Thailand, which disrupted regional supply chains, Japan's domestic demand of rolled-aluminium products fell to 2 million tonnes in the year ended March 2012 from the pre-Lehman crisis level of 2.3 million tonnes in 2007.

　　Japan's biggest fabricator Furukawa-Sky Aluminum Corp saw its net profit plunge 70 percent in the year ended March while sales fell 6.4 percent.

　　The Japan Aluminium Association expects shipments to recover to 2.06 million tonnes this financial year, up 2.8 percent, helped by stronger demand from the car and construction industries.

　　Companies such as Toyota Motor Corp and Honda Motor Co are expanding production of fuel-efficient vehicles, helped by government subsidies although the incentives programme is likely to expire as soon as July.

　　Norsk Hydro previously decided to idle its 180,000-tonne per year Kurri smelter in Australia. U.S. producer Alcoa has already said it is taking a hard look at the cost profile of its Point Henry smelter, while Rio Tinto Alcan has put all three of its Australian smelters on the sale block as it retreats to its low-cost Canadian base.

　　Under the financial deals, bankers buy physical metal and simultaneously sell forward at a profit, while striking a warehouse deal to store it cheaply in the interim. The deals have recently become more profitable as the difference between nearby and forward prices has widened.

　　The premium is applied to so-called Good Western-grade aluminum ingot. It includes freight and insurance costs, and reflects local supply and demand.