Japan's Q2 aluminium premium talks begin, no firm offers yet

Negotiations for Good Western grade primary aluminium supply contract for the second quarter of 2007 have started this week in Tokyo, and buyers are waiting to receive firm offers from producers, industry sources said.

There are two producers who have started the Q2 negotiations and none of them has indicated, or have made firm offers, sources said. Meanwhile, some consumer sources said they were hoping that the Q2 premiums to fall from the Q1 premiums of $76-78/mt plus London Metal Exchange prices, but they also said they have not presented their premium ideas yet during the talks.

One trader said he expected to hear $75-78/mt CIF from producers, while another consumer said he expected to settle at the levels "much much lower."

While exchanging views on the market fundamentals this week, differences surfaced in the interpretations of LME cash to three-months backwardations, stocks data and other market indicators, sources said.

Producers said there would be no major change in the supply and demand fundamentals in Q2 from Q1, and that they saw no softness in demand and that the lower premiums could not be justified, said one source close to the talks.

Consumers generally agree that the material demand is not weak, but there is no strong demand growth driver on the back of the high LME metal prices, sources said. "Q2 is the demand season, but I am not sure if the demand would pick up as we hope," one consumer said.

Port stocks also prompted discussions.

A second consumer said: "Japanese ports have stocks of around 240,000 mt of aluminium. Once we had less than 200,000 mt of stocks but buyers were still able to source the materials domestically, so I say port stocks indicate softness."

Port stocks at Japan's three main ports at the end of January totaled 241,000-243,000 mt. In January last year, the stocks were much higher at 315,000-317,000 mt. The consumer source argued that the 70,000 mt reduction in the stocks does not imply tighter supply, but indicated that trading firms are decreasing the volume of material under their direct control. "The higher interest rate is also causing the stocks to fall...interest rate does not indicate demand softness," he added.