PLATTS: Japan's aluminium demand slows on weak construction and beer sectors

Japan's demand for aluminium slowed in July on the back of lackluster construction demand and lower temperatures forecast for July and August, which cools down beer consumption, industry sources said. Shipments of rolled aluminium products to the construction sector was 261,123 mt in January to May 2007, dropping by 2.1% year on year. Aluminium demand for construction accounts for around 30% of the total, and the trend in this sector has a major impact. Traders and rolling mill sources said the downsizing of the construction market was inevitable as Japanese population growth, which affects the number of new homes, slows down. In 2000, aluminium for construction was a 797,332 mt/year market. In 2006, the market shrunk to 678,970 mt. The construction industry continues its efforts to spread the use of aluminium at industrial plants and commercial buildings, emphasizing lightness and recyclability as the metal's major advantages. But traders said they have noted slowness in high-rise building constructions this summer. The buildings use aluminium window frames and sometimes sheet for exteriors. "I believe most major urban development projects in the country are almost finished. And more buildings are using less aluminium. I hear orders for buildings eight to ten stories high, have decreased," said one source. One strong substitute for aluminium is resin, that has superior heat insulation properties. Sources also cited the rise of aluminium prices on the London Metal Exchange as another cause of reduced consumption, as the construction sector was highly cost competitive. Japanese sources were not optimistic about the shipment of cans for beer. Aluminium for can stocks account for 20% of rolled products demand. In January to May 2007, metal shipment for cans was 177,984 mt, up 4.0% year on year. But the market was not optimistic on shipment figures alone, however, as weather was the strongest demand driver for beverages. Japan's Meteorological Agency is forecasting temperatures in July in Japan to be at level, or lower than previous years' averages. Temperatures are expected to pick up in August, but that is not likely to create additional metal demand as can orders are made months in advance. Traders also negotiated with the beverage makers this year, to raise prices of beer and other beverages by Yen 1 (0.8 cents) per one 350 ml can. On the back of higher beverage prices, the beverage makers would have less concerns about cost control of the aluminium metal and keeping their stocks low. "One yen price rise, could offset the higher freight costs, the higher LME prices, the exchange rate fluctuations, and the beverage makers agreed. But no one wants to be the first to raise prices," a second trader said. A can of 350 ml beer costs Yen 150-250 ($1.30-2). Cost of aluminium sheet is maintained at 10-15% of the beer price. Meanwhile, traders said demand for the car sector was steady. Japanese buyers sourced around 500 mt of aluminium ingot on a spot basis earlier this month, and the 500 mt was mostly for car components.