Japanese 1Q Aluminum Premiums Likely To Fall

SINGAPORE (Dow Jones)--Japanese aluminum premiums for first-quarter 2009 contracts are likely to fall, traders said Monday. Japanese premiums for good western brand aluminum, which are set on a quarterly basis, are regarded as a benchmark for the Asian region. The negotiations between Japanese aluminum producers and large consumers from the manufacturing and construction sectors commence next week. Fourth-quarter premiums were set at $75-$77 over the cash London Metal Exchange price, but a trader at a major Japanese metals trading house said the demand outlook had deteriorated and premiums were certain to fall. The trader said he expected the negotiations to yield premiums below $70, but could not be more specific. Another trader said spot domestic Japanese premiums had fallen to between $50 and $65 per metric ton from more than $70 in September. Premiums reached $83 to $84 in second-quarter contracts on concern over supply due to rising energy costs and power shortages in South Africa and China. At 0400 GMT, London Metal Exchange three-month aluminum was trading at $1,930 a metric ton, up $2 from Friday's afternoon kerb, but down 42% since July. Analysts say production cutbacks are the only factor supporting aluminum prices at the moment with the demand outlook so weak. "With the U.S. auto industry under significant distress, airplane orders declining and global construction sectors crumbling, we expect aluminum producers will need to deliver sizeable production cuts to offset the scale of demand destruction," Deutsche Bank said in a report dated Friday. Deutsche Bank forecasts that aluminum prices will average $1,874 per metric ton in 2009.