Aluminium producer offers CIF Japan premium of $80/mt for Q1 2007

A Western producer of aluminium ingot has offered to Japanese traders and rolling mills a premium of $80/mt on a CIF basis plus London Metal Exchange cash for the first quarter of 2007, Japanese industry sources said on Monday.

The aluminium producer has offered the $80/mt premium for Good Western grade 99.7% purity ingot. The offer level decreased from the premiums for the current quarter at $82-84/mt and was also lower than the spot premiums at $82-83/mt, according to Platts' assessments.

One trader said the Q1 2007 premiums have been expected to fall on the back of excess domestic supply. Japan's stocks of aluminium at the country's three main ports stood at 243,000-244,000 mt at the end of October. This data suggested that Japan had more metal than needed, he said. A second trader said Japan's supply and demand are balanced at the port stock level of 220,000 mt.

Meanwhile, the producer kept the offer at $80/mt and not lower, as they saw the Japanese supply possibly tightening on the back of tax changes in China. Effective November 1 this year, China's export tax on aluminium has been raised to 10% from 5%. There is uncertainty in how much the Chinese smelters would be able to supply to Japan in Q1 2007 as they need to absorb the $130-140/mt rise in export costs, the producer told the trader.

During the Q3 2006, China exported to Japan 35,753 mt of aluminium ingot with over 99% purity, which accounted for 7% of Japan's total aluminium ingot imports during the period.

On the other hand, Japanese consumer and trade sources said they expected the premiums of $73-79/mt for Q1 2007. One consumer and a trader said there was slowness in demand in the US and in Japan, as indicated by the falling premium levels in the US.

Regarding the impact of the new export tax in China, Japanese buyers agreed that it would reduce Japanese aluminium imports from China.

"With the new tax, the Chinese sellers are expected to commit less to contract sales, and Japanese buyers are expected to buy less on contracts," the first trader said.

The buyers also said the impact of the tax on the actual sales volume would be difficult to measure. They said the amount of Chinese exports to Japan would depend on the price differences between the Shanghai Futures Exchange, that sets the domestic metal prices in China, and the London Metal Exchange, the export prices. The second trader suggested that the SHFE and LME price trends depend on what the Chinese aluminium smelters, who produce more than a quarter of the global supply, would want to operate their business.

"They can control the LME prices...if they stop exporting, prices would rise, if they start exporting, the prices would fall," he said.