Rio Tinto cuts Japan aluminum premium to 18-month low

Rio Tinto Group and rival producers will cut the quarterly premium they charge Japanese customers for aluminum to the lowest level in 18 months because of a glut, according to five participants in the negotiations. The premium, which may set an Asian benchmark, will drop to US$65/tonne for shipments in the three months to Dec. 31 from US$68 to US$70/tonne in the period ended Sept. 30, said the executives, who declined to be identified because the talks were private. Rio Tinto, based in London, and Alcoa Inc. have reduced premiums for buyers including Sumitomo Corp. and Kobe Steel Ltd. as construction demand declines in Japan, the second-largest economy. Global oversupply is the reason for the cut, a producing company executive responsible for the decision said by phone yesterday. The amount is levied on top of the price of the metal for immediate delivery on the London Metal Exchange. That price fell 14% this year as world production outpaced demand. Ian Head, a spokesman for Rio Tinto, couldn`t immediately comment when telephoned today. A spokesman for New York-based Alcoa was not immediately available when telephoned and e-mailed outside business hours. The global aluminum market will have a 290,000 tonne surplus in 2007 compared with a 303,000 tonne deficit last year, according to trading company Mitsubishi Corp.`s aluminum sales unit. Capital spending in Japan fell 4.9% in the three months ended June 30 after advancing 13.6% in the first quarter, the Ministry of Finance said Sept. 3. Spending by real-estate companies slumped 47% from a year earlier. Japan`s output of rolled-aluminum products, used in construction, fell 1.5% in July from a year earlier to 203,609 tonnes, the fourth monthly decline, according to the Japan Aluminium Association. “Aluminum demand in automobile production has been very good this year, but it was more than offset by a slump in usage in construction,`` said Kunio Ishikawa, a director at the association, said by phone yesterday. The premiums, which include the costs of insurance and shipping, apply to so-called Good Western-grade aluminum in got imported for processing. Some producers had planned to increase fourth-quarter Japanese premiums as exports of lower-grade aluminum declined from China, the biggest maker, reducing supplies in Asia. China`s exports of primary aluminum fell 56.8% to 368,910 tonnes in the first eight months of this year, according to the Beijing-based customs office on Sept. 11. The country imposed a 15% tax on exports of aluminium bars and rods from Aug. 1 and removed tax rebates of between 8% and 11% a month earlier. Aluminum buyers in South Korea and Taiwan have bought more Good Western-grade aluminum ingot since July to make up for the shortage of supplies from China, traders said. Stockpiles of the metal at Japan`s Yokohama, Nagoya and Osaka ports fell 6.3 % in August to an estimated 228,000 tonnes from a month earlier, after swelling to the highest in five months on July 31, according to trading company Marubeni Corp. Rio Tinto in July agreed to buy Alcan Inc. for US$38.1 billion in cash, overwhelming a hostile bid by Alcoa to form the world`s biggest aluminum maker. Aluminum for immediate delivery on the LME gained 1.8%, or US$42.75/tonne, to US$2,425/tonne yesterday.