Sumitomo says Japan's Q2 aluminium premiums to hit $120-$130

Japan's aluminium premiums will likely rise to $120-$130 per tonne over April-June from the current quarter's $110 per tonne as falling imports are trimming local inventories, Japanese trading house Sumitomo Corp said on Friday.

Japan is Asia's top aluminium importer and the premiums it agrees to pay each quarter over the London Metal Exchange (LME) cash price for primary metal shipments PREM-ALUM-JP set the benchmark for the region. The premiums for January-March shipments are up 22 percent from the last quarter of 2015 on higher overseas rates and shrinking inventory at home.

"Aluminium imports will drop further as Japanese trading houses and end-users want to cut their stocks by the end of their business year in March," Shingi Yamagiwa, manager of Sumitomo light metals trading team, told reporters.

Japan's imports of primary aluminium have been falling since mid-2015 after stocks at the nation's three major ports hit a record high. The inventories touched 502,200 tonnes in May last year as exports of cheap semi-fabricated products from China to other buyers in Asia had prompted more primary metals to head to Japan in search of buyers. But by the end of December, aluminium stocks at the major ports had slid to 393,600 tonnes.

"With smaller purchases by Japanese buyers, the stocks may fall to 300,000 tonnes by the end of March or April," Yamagiwa said.

The shrinking stocks have helped lift local spot premiums to $110-$130 per tonne, compared to U.S. premiums of about $190 per tonne and European rates at around $90 per tonne, he said.

Sumitomo also forecasts the quarterly premiums to rise to $150 per tonne in July-September and $140 the following quarter. The trading house, which owns 20 percent stakes in Malaysia's two aluminium smelters, forecasts LME aluminium prices to hit bottom soon and move higher towards $1,700 a tonne later this year due to production cuts at smelters.

LME aluminium has dropped a little more than 1 percent so far this year and was trading around $1,490 a tonne on Friday.

Sumitomo estimates the global aluminium market, including China, to be roughly in balance in 2016, with supply exceeding demand only by 172,000 tonnes. Last year, the oversupply totalled 1.4 million tonnes. But the recent turmoil in financial markets may add to general pressure on prices, Yamagiwa added, and "weigh on global commodities, economies and financial markets".