Japan Q4 aluminium premiums ease, mostly set at $245-$247-sources

Japanese aluminium buyers will mostly pay slightly lower premiums of $245-$247 per tonne over London Metal Exchange (LME) prices for October-December shipments after talks with producers of the metal, sources involved in the negotiations said.

The softer premiums, down from around $250 in the previous quarter, reflect a fall in overseas premiums and slack demand. Japan is Asia's biggest importer of aluminium and the premiums, agreed each quarter, set the benchmark for the region.

The premiums for Oct-Dec shipments are their first quarter-on-quarter declines since the first quarter of 2013 and compare against the record highs of $254-$255 a tonne in the fourth quarter of last year.

"We really wanted to win lower premiums this time as local demand is not that strong and premiums in Europe and the United States are lower," an end-user said on Friday, adding that he settled a deal with one producer at $246 a tonne this week.

The latest quarterly pricing negotiations began late last month between Japanese buyers and global miners including Rio Tinto Ltd , Alcoa Inc, BHP Billiton , and United Company Rusal .

Falling premiums follow a global trend since the LME announced mid-year an overhaul of its warehousing system to free up metal trapped in queues.

Another source at a Japanese trading house said his firm got most of the deals done at $245-$246 a tonne while a source at a seller said most of negotiations were finished this week with premiums based on a range between $245-$247.

Two top aluminium producers initially wanted buyers to pay a premium of $250 per tonne for Q4, citing healthy aluminium demand in Japan on the back of Prime Minister Shinzo Abe's stimulus programme. One seller even sought $260 initially, according to sources.

"We have decided to lower the offer as many buyers expressed concern that premiums will fall in the future as European and the U.S. premiums are down," a source at a producer said.

The LME in July proposed an overhaul of its warehousing system to cut long queues that some consumers say have inflated prices to get metal. Spot premiums in Europe are down some 20 percent from a June record high near $300 a tonne as a result.

Some producers had argued the rule change will not affect any locations in Japan or nearby in Asia, but buyers, unhappy with the lofty premiums since last year, strongly demanded lower premiums this time, with some initially asking for $238-$240.

"The reason why Asian premiums were pulled up in the first place is because a lot of the units that could have been diverted to Asia were diverted to Europe and U.S. because of the higher premiums. But if that premium structure breaks down, then more metal could reach Asia," said a trader in Singapore.

Premiums are paid over the benchmark LME cash price to secure physical metal.