Asia’s second-largest aluminum importer may pay highest fee in 14 years

JAPAN, Asia’s second-largest aluminum importer, may pay the highest fee in 14 years to suppliers from October as reduced shipments from Russia and increased purchases by China boost prices. The premium may climb at least 33% to more than 100 a metric ton over the London Metal Exchange cash price in the three months to Dec. 31, four executives, representing smelters and buyers, said before pricing talks next week. The fee would be the highest since buyers began purchasing most requirements through long-term contracts in 1996, said the people, declining to be identified as the negotiations are private. Aluminum, used in homes and cars, climbed 28% this year, reaching the highest level since November, on signs the global economy is recovering, boosting demand for industrial metals. Japanese buyers pay a premium over the benchmark price that reflects local supply and demand and includes freight and insurance costs. Increased fees may boost costs for fabricators such as Furukawa-Sky Aluminum Corp. and Kobe Steel Ltd. “Aluminum demand is improving, led by the auto and electronics industries, but a steep increase in purchasing costs may slow a recovery as fabricators will have difficulty passing on higher raw material prices to customers,” said Kunio Ishikawa, director at the Japan Aluminium Association. Japan’s economy expanded 3.7% in the 3 months to June 30 after declining 11.7% in the first quarter, the Cabinet Office said Aug. 17. The premium, applied to so-called Good Western-grade ingot, rose as high as 75 a ton this quarter, the first gain in a year. The fee dropped to between 55 and 58 a ton in January to March, the lowest level since 2004. Aluminum for delivery in three months on the LME gained 0.9% to 1,967 a metric ton at 3:55 p.m. in Tokyo. The metal touched a seven-year low of 1,279 a ton on Feb. 24. Japan’s imports of refined aluminum from Russia fell 46% to 117,339 tons in the six months ended June 30, from a year earlier, according to the Ministry of Finance. The country’s total imports were 601,278 tons. China’s purchases of refined aluminum soared 1,565% to 1 million tons in the first six months, reducing supply in Asia, as a 4 trillion yuan stimulus program boosted demand and the government stockpiled metal. Output by United Co. Rusal, the world’s biggest aluminum producer, fell 10% in the first half to 1.98 million tons as the company joined Alcoa Inc. and Rio Tinto Group in reducing production to curb a slump in prices. Rusal halted some Japanese deliveries this quarter after agreeing in June to sell as much as 1 million tons to Glencore International AG, the Swiss commodities trader that owns 9.7% of the Moscow-based company, Dow Jones reported June 16. Shipments from Russia may be affected by an accident that shut Russia’s largest hydroelectric power plant this month, reducing electricity supply to Rusal’s plants. The company may lose at least 500,000 tons of output after the accident, Artem Volynets, Rusal’s director of strategy, said Aug. 17. Scarce Asian supplies spurred buyers to increase purchases from smelters in Australia, South America and Africa, boosting the premium for Good Western metal. Ryu Sawachi, spokesman for Tokyo-based Furukawa-Sky, said the company couldn’t comment on premium levels. Diane Collier, a spokeswoman for Rio Tinto, was not immediately available for comment when phoned. Demand in Japan improved as government incentives boosted sales of hybrid cars and electric appliances that consume less electricity. The country’s shipments of aluminum rolled products dropped at the slowest pace in 7 months in June. Aluminum stockpiles in Yokohama, Nagoya and Osaka ports fell to 174,200 tons at the end of July, according to Japanese trading house Marubeni Corp. That was the lowest level since the company began compiling data in June 1995.