Japanese aluminum buyers expect high Q4 premiums despite slowing demand

Japanese aluminum buyers are expecting fourth quarter premiums to rise to record-high levels despite slowing demand, sources said Friday ahead of the negotiations from next week.

The highest quarterly premium recorded at least since since September 2000 was $200-210/mt plus LME cash CIF Japan for Q3. And Japanese buyers see Q4 premiums rising from Q3 as spot premiums have risen to $250/mt on the back of tight supply.

Meanwhile, Japanese aluminum end-user sources said that demand, with the exception of the housing sector, was slowing due to the winding down of the Japanese car purchase subsidy program and the weaker European and Chinese economies hitting machinery exports.

Platts spot Japan import premiums have been at $250/mt plus London Metal Exchange cash CIF Japan since July 25, following a deal at $250/mt plus LME cash CIF Japan for less than 1,000 mt/month delivery over October-December. Two more deals at $250-255/mt plus LME cash CIF Japan were reported, each for 500 mt for September-October delivery, but details could not be confirmed.

Japanese traders said they expected the Q4 term premiums to be discussed around the recent spot settlements.

Japanese buyers are ready to accept the rise in the Q4 premiums, they said, as many are aware that the LME aluminum contract prices have been below $1,900-2,000/mt production cost levels and this has forced the closure of the Kurri Kurri smelter in Australia and led to output cutbacks elsewhere.

The US dollar trading below Yen 80 has also lowered the Japanese import costs, they said.

Some Japanese end-users have also raised the possibility of the LME aluminum prices spiking. Three Japanese traders, however, said they saw the LME prices moving little for the rest of the year. Demand for aluminum from Japan's automotive sector is slowing the country's subsidy program winds down. Japan's subsidies for fuel-efficient trucks expired July 5 and those for passenger cars will end in the current quarter.

Japan's output of aluminum sliding door and window frames averaged 31,500 mt/month over January-June, up from last year, as earthquake reconstruction activity continues, housing industry sources said. The high level of output is expected to continue into the fourth quarter, the sources said.

The Q4 premium negotiations -- involving over 15 Japanese buyers -- comprise trading houses and end-users, and 8-10 overseas sellers including producers and traders, and are for premiums for 300-3,000 mt/month of primary aluminum ingot, alloy, billet and slabs shipped to Japan over October-December.

One overseas producer is expected to announce its Q4 premium offer to Japanese buyers next week, and two or three overseas producer representatives will be arriving in Japan end August, Japanese buyers said.

The talks usually settle by September 15, the deadline to complete procedures for cargoes shipping in October.