Japanese aluminium demand still sluggish

Japanese demand for aluminium is still sluggish, weighed down by the problems in the housing sector, judging by the latest mill product shipment figures released by the Japan Aluminium Association.

At 196,842t in May, shipments were unchanged year-on-year. That follows a 2.1% rise in April, which had been the first month of year-on-year increase since August 2007.

The time-frame of sliding mill shipments—a useful proxy for actual demand—accords with the timing of the collapse in the residential construction sector after the implementation in the middle of last year of new building regulations.

These were an understandable reaction to a previous scandal involving the falsification of earthquake resistance data but the implementation was badly handled, leading to a collapse in the pace of housing starts as planners adjusted to the regulatory changes.

The housing sector has not yet fully recovered. The most recent figures for May showed housing starts running 6.5% below the pace of the year-earlier level.

True, that was better than the 8.7% year-on-year decline in April and the double-digit falls seen over the back end of 2007, but a full recovery is still pending.

Housing sector weakness is affecting in particular the extrusions sector. Shipments of extrusions fell for the sixteenth consecutive month in May.

Flat rolled product shipments have held up relatively well, although they have not been able to offset the weakness in extrusions.

It is against this backdrop of lacklustre local demand that Japanese buyers fought against another rise in quarterly premiums. They did so unsuccessfully, eventually falling in line at a Q3 premium level of $87-88/t over LME for Western brand metal.

It was the second straight rise and means the quarterly premium is at its highest level since Q4 2004. Rather than reflecting local consumption trends, the increased premium is a function of supply-side stress in the aluminium market, particularly in traditional origin countries for Japanese imports such as South Africa and New Zealand. Smelters in both countries have had to reduce production this year in the face of power shortages.

Source: MetalsInsider