Japan's aluminum premium rises for buyers

TOKYO -- Aluminum producers will increase the fee they charge Japanese buyers next quarter for the first time in a year on rising demand and reduced supply, as the world's second-largest economy shows signs of recovery from recession. The premium will climb to US$68 to US$75 a metric ton over the London Metal Exchange cash price for the three months to Sept. 30 from a five-year low of US$55 to US$60 a ton this quarter, according to four executives involved in the talks. They declined to be identified as the negotiations were private. Aluminum price gains will increase costs for makers of beverage cans, cars and appliances as demand starts to revive from the worst recession since World War II. Industrial output in Japan surged the most in 56 years in April as spending by governments around the world helped prop up export markets. China's overseas purchases of the metal surged to a record in April while its aluminum exports to Asia slumped this year. "The worst is over for our industry," Kunio Ishikawa, director at the Japan Aluminium Association, said in a phone interview. "Output at mills is rising on increased orders." The premium, applied to so-called Good Western-grade ingot imported for processing by Japanese mills, will climb to the highest since October to December last year. Some deals for the next quarter are still being negotiated, the people said. Aluminum for delivery in three months on the LME rose 0.5 percent to US$1,628 a ton at 5:53 p.m. Tokyo time. The metal jumped 9.2 percent last week, the biggest gain since June 1988. Japanese trading companies and aluminum mills buy the metal under contracts with producers such as BHP Billiton Ltd., the world's largest mining company, and Rio Tinto Group. The premium is levied on top of the LME price for immediate delivery and reflects supply and demand in Japan, Asia's largest net importer, and includes insurance and freight costs. Rio Tinto doesn't comment on pricing negotiations, spokeswoman Diane Collier said. BHP Billiton wouldn't comment on individual deals, spokeswoman Samantha Evans said. The premium also increased as China, the world's largest aluminum producer, became a net importer of the metal and slashed shipments to buyers in Asia. China's imports of primary aluminum rose to a record 362,400 tons in April, about four times the volume in March, as higher local prices made imports attractive. Purchases also gained as buyers replenished stockpiles needed for the country's 4 trillion yuan (US$585 billion) stimulus plan. Chinese aluminum imports surged 876 percent from a year earlier to 478,155 tons in the first four months of this year, while exports in the period tumbled 83 percent to 3,794 tons. Aluminum spot premiums for Japanese buyers had increased to US$90 a ton to US$95 a ton after United Co. Rusal told Japanese trading companies it would suspend shipments for the July to September quarter, the Nikkei newspaper said earlier today.