Negotiations for premiums for Good Western grade primary aluminium ingots to be exported to Japan in the first quarter of 2007 has begun this week in Japan, local industry sources said on Wednesday.
The talks started after the London Metal Exchange cash aluminium price fell to around $2,500-2,600/mt late last week, down from $2,700-2,850/mt in late October. The cash to three-months differential has remained in a contango this week.
Traders as well as consumers said with the LME prices easing to $2,500-2,600/mt, domestic spot deals have become more active. Traders said there was acute interest in buying the metal at $2,500-2,600/mt plus premiums of around $80-85/mt for domestic delivery. In October, some traders were quoting as low as LME prices plus premiums of around $60/mt.
Domestic spot demand for aluminium ingots had cooled in October on the back of the LME cash prices at around $2,800/mt and the cash to three-months spread in backwardation. Rolling mills had urged their plant managers to cut material stocks further.
With the recovery of buying interest, traders are regaining their optimism. Most traders said the 2007 aluminium demand in Japan is expected to stay unchanged from 2006. "Buyers want to run their operations at minimum stocks, but I doubt they can reduce their material purchases further [from the
current level]," one trader said. One trader projected a 1.8% year on year increase in Japanese demand for next year: the material demand for can sheet and extrusions may weaken, but the demand for auto wheels and diecasting is strong.
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