ANALYSIS-Japan aluminium demand on the mend, but vulnerable

* Metal demand not seen recovering 2.3 mln T/yr for some time * Prolonged construction sector slump weighs on metal demand * Subsidies on low-emission cars watched for impact on demand By Miho Yoshikawa TOKYO, Dec 15 (Reuters) - Japan's apparent demand for aluminium has finally recovered close to levels seen before the economic crisis at the end of last year, but the pace of recovery could slow or even dip again next year. Analysts say a stimulus package that encourages purchases of new cars may not be having as much impact as first hoped, while the deep slump in the construction industry will continue to act as a drag. At the nadir of this year's demand slump, Japan's aluminium product shipments were down about 40 percent compared with 2008 as the worst economic downturn in decades forced automakers and other top manufacturers to cut production. "Japan's demand has rebounded, but off a low base and it's still not that strong," said Mark Pervan, ANZ's senior commodities analyst. "A lot has been export-led, and a lot of that export demand is probably likely to soften into 2010 on the back of probably a pull-back in order demand," he said. Apparent demand for aluminium in Japan in the third quarter of this year averaged a little over 122,400 tonnes, Reuters calculations based on port stocks and official data, including imports and exports, show. The level is an improvement from the first quarter of this year when demand slumped to an average of about 106,400 tonnes, but is still down nearly 20 percent from the third quarter in 2008, before the collapse of brokerage Lehman Brothers sent the world economy into freefall. The decline in demand combined with the need to consume ballooning domestic stocks shaved imports by Japan, Asia's top net importer of primary aluminium, to less than half their usual level, typically about 160,000 tonnes a month. For a graphic on Japan's apparent demand on a quarterly basis and Japan's GDP, click: http://graphics.thomsonreuters.com/129/JP_ALLMED1209.gif Aluminium prices rose above $2,300 per tonne on Monday to the highest since October 2008, but the 50 percent increase in prices still lags other base metals such as copper and zinc.. EYES ON CARS, CONSTRUCTION On the domestic front, officials say aluminium demand has been helped by government stimulus measures, especially a car scrapping incentive that gives consumers cash to replace old cars with new ones that meet certain fuel economy standards. The Japanese government said on Dec. 8 it would extend until September 2010 subsidies on low-emission cars, which metal industry officials hope will help stimulate aluminium demand. "Obviously motor vehicle production uses aluminium very extensively and so it's my impression that part of the increase in demand from Japan ... was a result of these policies that were being implemented," said Ben Westmore, commodities economist at National Australia Bank. The transportation sector accounts for nearly 40 percent of aluminium use in Japan. Some officials say, however, the scheme may not be boosting demand as it might once have. "The number of cars that are being sold has risen, but they are smaller vehicles, which means that aluminium demand isn't growing quite as much," said Yutaka Ishibashi, a general manager at Japanese trading firm Marubeni Corp. An official with the Japan Aluminium Association said using aluminium raised the cost of the car, and that this capped its use in smaller, less expensive vehicles. "As a general rule, the upscale passenger cars tend to use more aluminium due to reasons of costs," he said. The deep slump in the construction industry, the second-largest consumer of the metal at 14 percent, is also blamed as a major factor delaying a full recovery in aluminium demand. Housing starts in Japan fell 27.1 percent in October from a year earlier, marking the 11th straight month of declines, latest government data shows. Japanese industry officials, who are currently engaged in price negotiations with overseas miners for primary aluminium supplies, say demand for the metal remains fragile and they do not anticipate robust demand in the first quarter of 2010. "In the current quarter there was a need to buy the metal after aggressive destocking, but I think the biggest difference in the next quarter is that the pace of the recovery in demand will most likely slow," one Japanese buyer said. In a report released in early December, Marubeni estimated Japan's demand for primary aluminium would be less than 1.8 million tonnes this year -- equivalent to around 5 percent of global output -- and down almost 20 percent from 2008. Demand next year is expected to show a small improvement, rising 7.5 percent year-on-year to 1.9 million tonnes in 2010. Marubeni predicted it will take until 2011 for Japan's aluminium demand to top 2.0 million tonnes again, still well short of its usual level of about 2.3 million tonnes. "One thing you can be sure, it's going to take time for it to return to that volume," Marubeni's Ishibashi said. (Editing by Clarence Fernandez)