Rough talks ahead for Japan Q2 aluminium premium

TOKYO, Feb 26 (Reuters) - Japanese primary aluminium buyers, facing a slump in demand, are in a bind as they begin second quarter price talks with overseas suppliers who say they cannot agree to cuts because demand is recovering elsewhere in Asia. Industry officials say demand for aluminium in Japan shows no sign of recovering as leading automakers, top customers for the metal which is also used in packaging, continue production curbs due to a curtailed export market. An official at a Japanese trading firm who has met with some overseas suppliers said price ideas offered for Q2 had mostly fallen in a band of $60-$62, the upper range of premiums settled for the January-March quarter. Term premiums for the first quarter were mostly settled in a wide range of $58-$62 in talks with sellers such as mining giants BHP Billiton and Alcoa Inc , reflecting diversity in the position of the buyers, he said. Industry officials involved in the talks, which include Japanese trading companies and aluminium mills, say those terms for April-June were unacceptable for buyers, still struggling with bloated stocks. "Looking at the domestic demand situation, that is clearly an unacceptable level for Japanese end-users," the official said. "The offers are drawing a blank look from end-users." Officials say say domestic aluminium stocks have ballooned, with supplies at three Japanese ports, tracked every month by Marubeni Corp <8002.T>, soared to a 10-year high in January. [ID:nT40783] An official at a Japanese end-user said his company was not in a position to buy much aluminium for the second quarter due to poor demand. "There's really no need for us to buy the metal for the second quarter," he said. JAPAN WORST HIT Industry officials said Japan seemed to be in the most dire situation in Asia, with more buying reported particularly in China, which was enabling sellers to refuse to lower the second quarter premium. "It seems sellers are reluctant to lower the premium to Japan, because it would have a negative influence on talks with other (Asian) buyers," the second official said. Just this week South Korea's state-run Public Procurement Service said it purchased 6,000 tonnes of primary aluminium ingot from BHP Billiton Marketing. [ID:nSEO127718] The official said sellers themselves were being battered with poor profit margins as prices of aluminium tumbled. The price of aluminium on the London Metal Exchange slumped to a seven-year low under $1,280 a tonne this week. There was little economic news to cheer the industry. Figures this week showed Japan's exports nearly halved in January from a year earlier, with record slides in shipments to the United States, Europe and the rest of Asia pointing to a deepening recession across much of the world. [ID:nT49636] The data bodes particularly badly for Japan's export-oriented economy. Nissan Motor Co <7201.T>, the nation's third-biggest automaker, said on Thursday it was on track to reverse some of its production cuts in Japan in March, although it said vehicle sales remained weak and unpredictable. [ID:nT262934] The automobile sector accounts for about 40 percent of Japan's aluminium consumption, which is a little over 4 million tonnes. Industry officials say a recovery in raw material demand will probably lag a recovery in production of automobiles and other manufactured goods. Japan buys roughly 2 million tonnes of primary aluminium from countries such as Australia and Russia. (Reporting by Miho Yoshikawa; Editing by Michael Watson)