Japanese trading houses not buying primary aluminum despite supply easing

Japanese trading houses are not buying primary aluminum ingot from the spot market despite supply easing, market sources said Wednesday.

Supply on a spot basis was available due to non-Japanese customers reducing order volumes and spot demand in Asia not as strong as previously expected, the sources said.

Japanese trader and rolling mill sources said that in the last three weeks they had heard overseas producers inquiring if there was interest in spot 99.7% standard ingot or off-specification metal. Such spot offers were limited in the previous quarter.

Aluminum suppliers said they had noticed buying interest drying up in Japan after record high Q4 premium settlements in late September.

Tight supplies, triggered by producer output cuts this year, had caused premiums to rise. Fourth quarter term premiums were agreed at a record high of $254-255/mt plus London Metal Exchange cash CIF Japan in late September, more than double the $112/mt premium agreed for the first quarter.

The higher premiums reflected tighter supplies as Alcoa, Rio Tinto Alcan and other global suppliers to Japan cut output and were not as flexible as before in meeting additional requirements from customers, sources said.

Meanwhile, suppliers seeking interest for 500 mt spot 99.7% P1020A aluminum ingot for November shipments, or off-specification cargoes, said they had not attracted buyers.

Japanese traders were also declining spot offers, citing high inventories and a possible slowdown in demand, the sources said.

"I will not find a customer for aluminum with a $240/mt premium," a Tokyo trader said. Another trader said that a recent 200-300 mt deal for January delivery was heard at $20-30/mt below the Q4 import premiums. Traders also pointed to high Japanese port warehouse stocks -- which rose by 5% to 273,900-281,000 mt in September from August, although stocks typically decrease in September as manufacturing plants return to full production after the summer holidays.

"The material is available at ports, and there is no need to reach out for imports," a trader said.

Traders said that though current end-user demand was holding steady they feared slowing car and electronic appliance sales and exports could hit them later.

"Businesses are relatively stable so far, but there is no factor that can lift demand. Outlook is gloomy," a second trader said.

Trade sources said that 40,000-50,000 mt/month of construction demand was stable, and several traders said they were receiving constant inquiries from end-users.

The 30,000-40,000 mt/month beverage can demand is also holding up, according to a rolling mill source, as September-October temperatures in Japan were high.

But November orders from the automotive and electric appliance sectors were 5-30% below targets, some traders said. "The demand slowdown is gentle but still alarming," a trader said adding that there was only a negative outlook on the horizon on the back of slowing Japanese exports to China and Europe.

Traders also said the expected housing construction boom, before the 2014 consumption tax hike, was several months away.

The Platts spot aluminum premium for import into Japan was assessed at $220-230/mt plus LME cash CIF Japan Wednesday. It has remained unchanged since October 16. The $220-230/mt assessment was based on an early October discussion between an overseas supplier and Japanese buyers for a spot cargo for shipment from an Asian port within the current quarter.