COVID-19 Impact: Japanese aluminium premium stands lowest at $79/since December quarter 2016

According to a recent report from Reuters, some Japanese aluminium buyers have agreed to pay $79 per tonne of premium to a global producer for July to September shipments. Compared to the previous quarter premium, it is down by 3.7 per cent, attributing to the lower demand due to the COVID-19 pandemic. In the April-June quarter, the premiums that Japan had agreed to pay were $82 per tonne.

Japan is Asia’s largest aluminium importer. The premium it agrees to pay each quarter for primary aluminium shipments over the benchmark London Metal Exchange (LME) cash price sets the pricing tone for the region.

The downfall in premiums for the September quarter marks the fourth straight quarterly decline and the lowest since the October-December quarter in 2016.

While some Japanese buyers have agreed to this premium, many others are still negotiating with global suppliers. The latest quarterly pricing talks began in late May between Japanese buyers and global producers, including Rio Tinto and South32 Limited.

Usually, agreements between buyers and sellers over premiums take place before the beginning of the new quarter. But this time, the negotiations are taking longer due to a wide gap between producers’ offers and buyers’ bids, said the sources.

A source at an aluminium producer said, the coronavirus pandemic has taken a toll on the Japan’s aluminium industry, especially for use in automobiles. This, as a result, is prompting buyers to seek lower premiums.

“But producers were sticking to higher premiums on the back of firmer demand from China and South Korea, where industry activity has picked up earlier than Japan and a recovery in the U.S. premiums,” a source at a producer said.

“Still, we’ve made a compromise as time was running out,” he said.