Japanese consumers reject Q4 aluminium premium offers of $75/mt

Japanese aluminium consumers have declined producer premium offers at $74-75/mt plus London Metal Exchange cash on a CIF Japan basis, for fourth quarter shipments, sources close to the negotiations said Friday. More than 10 buyers in Japan, which include rolling mills and trading companies, and around 3 producers of Good Western grade primary aluminium, are believed to have started negotiations for fourth quarter premiums this week in Tokyo. The premiums will be applied to Good Western aluminium to be shipped to Japan from Australia, South Africa and other origins in the fourth quarter of this year. Buyer sources said there was an initial offer at around $74-75/mt plus London Metal Exchange cash on a CIF Japan basis, as well as an another offer lower than $68/mt CIF Japan. The premiums for the current quarter are $68-70/mt CIF Japan. There was a $9-10/mt spread between the highest and the lowest offers, sources said. Consumers and traders in talks said the $74-75/mt offer was not acceptable. A Japanese trader confirmed that consumers had rejected the offer: "I believe mills said flatly, we won't buy, don't need it." The trader said the $74-75/mt CIF Japan offer was still valid, but the producer sources might submit a new offer next week. Meanwhile, a mill source commented that he considered the current offers to be invalid. Producer sources were contacted, but they were not available for comment Friday. Japanese sources said negotiators for the producers were local representatives and officials from abroad. Talks were expected to continue next week in Dubai, as many market participants would be attending an aluminium conference to be held there. A few sources in talks said $50-60/mt CIF Japan was the acceptable level, on the grounds of weak demand and excess supply indicated by rising port stocks. Sources noted too that the Q3 premiums of $68-70/mt CIF were not representative of market conditions. Another source said Japanese buyers continued to buy at $68-70/mt CIF this quarter and at $71-74/mt CIF in Q2 and as a result, had built up high stocks. Others seemed to be expecting a more moderate decrease in the premiums. Some traders said they held concerns that after some consumers had rejected offers producers might decide they would not sell to the Japanese. "There is no doubt that demand is stronger outside Japan," a second trader said. Japanese and Korean trade sources said metal was exported to South Korea recently at $72-75/mt plus LME cash, CIF Japan equivalent. A mill source acknowledged that demand outside Asia was strong on the back of reduced availability of Chinese aluminium. "Premiums rising in Q4 -- this is just not acceptable. But pushing the premium down as far down as $50/mt ... would be too extreme," he said, adding that he was looking for a win win situation with the producers. A third trader said he was pushing for lower premiums but was not confident if he had a strong argument to support his point. "The Japanese economy is doing well and the gross national product is climbing up, the industrial production indexes are up too, the overall construction is not bad, car production doing pretty good ... but when it comes to aluminium consumption, it is the worst ever in construction. But I do not have an explanation as to why aluminium is just doing so bad in this country," he said.