Japan's aluminium imports seen falling as buyers trim Q1 purchases

Japan's aluminium imports are expected to shrink for a second year running in 2016, after buyers skipped or trimmed purchases for January-March shipments due to still-high levels of local inventory. The expected drop in imports could help trim domestic aluminium stocks by March by about 100,000 tonnes to around 300,000 tonnes, pushing up surcharges for physical delivery of aluminium in Japan, industry sources said.

Japan is Asia's biggest importer of the metal and the premiums for primary metal shipments it agrees to pay each quarter over the London Metal Exchange (LME) cash price set the benchmark for the region.

Imports have been declining since stocks at the country's three major ports hit a record high of 502,200 tonnes in May last year due to an influx of excess cheap semi-fabricated products from China to elsewhere in Asia, prompting more primary metals to head to Japan to look for buyers.

The steady fall in imports since July saw shipment down 14 percent over the first 11 months in 2015, cutting inventory at the ports to 401,000 tonnes by end-November. Still, stocks remain above an average of about 250,000 tonnes during 2011-2014, which is seen by the industry as a healthy level. Some Japanese buyers slashed purchase volumes or skipped buying altogether for January-March shipment, according to industry sources.

The smaller local inventory and higher overseas rates boosted Japan's premiums for January-March shipments by 22 percent from the previous quarter to $110 per ton. Trader Marubeni Corp expects stocks to fall by about 30,000 tonnes a month through middle of this year.

"Stocks at the main ports may drop to as low as 250,000 tonnes, or at least to 300,000 tonnes by mid-year," said Norinobu Ozawa, general manager at Marubeni's light metals section.

Lower local stocks and tighter global supply after cutbacks and closures by producers could push up Japanese premiums towards $150 a ton later this year, he added. Many aluminium producers have cut loss-making capacity or shut down completely as London Metal Exchange prices and physical premiums have tumbled amid rising exports of semi-fabricated products from China and high energy costs.