Japan's domestic aluminum trade seizes up as yen hits 4-year-low

Traders in Japan's domestic aluminum market retreated Monday after the yen hit a four-year low of Yen 98.49 against the US dollar, increasing import costs by 5% from a week ago, according to sources.

The currencies traded at Yen 98.49 to a dollar at 16:00 local time (0700 GMT) Monday, the lowest since 2009.

"The volatile exchange rate ... moving by Yen 6 in a matter of hours, chased buyers away," a Tokyo trader said.

Japanese end-users typically buy aluminum in yen from local traders who import it from overseas.

"It is difficult for end-users to make their moves," a second trader said. "The LME aluminum price looks low, but the exchange rate moves raise costs in the end."

Traders said they expect end-users to be in wait-and-see mode for at least a week, as they gauge whether the yen will remain weak.

Several end-users were interested in making purchases last week, but the yen's latest drop chased them away. The dollar had traded at around Yen 93 during early hours Thursday before the Bank of Japan announced another round of quantitative easing.

Despite the yen drop, one consumer decided to buy Friday expecting higher prices in the near-term, traders said.

The buyer, a food packaging firm, bought 2,000-3,000 mt of primary aluminum ingot on yen basis via a tender that closed Friday, sources said. The metal is for delivery in about a year, according to traders.

"It seems the customer was waiting for the aluminum import price to fall, but after seeing the exchange rate moves late Thursday, decided to issue a tender Friday [and close on the same day] in anticipation of further exchange rate volatility," said a third trader.

A fourth trader called the market disorganized.

"Which way is it going, that is very difficult to tell," he said. "LME is falling, but is demand really down? Will the weak yen boost Japan's exports and improve aluminum demand? And when is the best time to buy? Very difficult to see a clear picture."

Japanese traders said some consumers currently buying in yen were considering switching to a dollar-basis for future trades to spread out exchange-rate volatility risks.