Premiums for Good Western grade aluminium ingots to be shipped to Japan in the second quarter of 2007 have settled at $71-75/mt CIF Japan plus London Metal Exchange cash among some producers and buyers, sources close to the talks said. Talks are still ongoing in Tokyo.
The initial Q2 premium settlements have come down from $76-78/mt CIF in the current quarter. A wider range also characterized the Q2 premiums. In the past, the premium settlement levels fit in a tighter range of $1-2/mt.
The Q2 premiums have fallen despite most producers forecasting robust aluminium demand in Japan ahead of summer when can stocks and air conditioner component consumptions rise. Although there were some producers indicating Q2 premiums lower than Q1, or unchanged from Q1, they all agreed that the Q2 demand prospect in Japan is firm.
Meanwhile, traders and consumers presented a different analysis. The buyers said the high LME prices and the cash-to-three months backwardation have forced consumers to keep small stocks. The LME aluminium stocks level has returned to levels around 800,000 mt in February, compared to around 700,000 mt in January, suggesting that the supply tightness is easing.
The major difference was seen in how sellers and buyers interpreted the Japanese aluminium products shipment and port stocks data. Producers said the shipment continued a healthy year on year growth for six months, while buyers said the year on year represented a recovery from the slump in 2005. Port stocks have decreased by 70,000 mt in January 2007 compared with a year ago. Producers said this shows healthy consumption, while buyers attributed the fall to weaker buying interest due to the LME price conditions.
After two weeks of discussions, some producers agreed to settle the Q2 premiums lower than Q1. The wider spread of $71-75/mt in the settlement levels reflected how much the producers depended on the Japanese market, traders also said.
"I believe producers are not really sure of the Q2 demand outlook worldwide...Q2 is the demand season worldwide, but the US economy is slowing down, so the reality is, producers don't really know [how the demand would be]," said one trader.
He added that Japan is the major market of Good Western aluminium and there is no taker of the material if Japanese consumers decided not to buy from them. "The demand in South Korea is strong, but the Koreans do not use Good Western, but Chinese, Indian or Russian materials," he said.
A second trader agreed, that those producers who rely more on Japanese demand were forced to bring down the premium levels.
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