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UPDATE 2-Japan Q2 aluminium premiums mostly at $122-$124/T

Tuesday, Mar 16, 2010

TOKYO, March 15 (Reuters) - Term premiums for primary aluminium shipments to Japan for April-June have mostly been agreed at $122-$124 per tonne, traders said on Monday, marking their first drop in a year, a pointer to easier supply and prospects of lower prices.

The second-quarter premiums were down about 5 percent from the first quarter but still near record highs and more than double the $56-$58 settlement for the same period last year.

Traders said many deals were agreed at $122 and $124, with at least one at $125. They had not heard of any below $122.

"It's a positive development that producers agreed to lower the premiums to this level, and the fact premiums fell is good for Japanese customers," said a buyer involved in the talks, who said his deals were struck at $122, $124 and $125 more or less evenly.  

"There seemed to be some incentives torush and sell now rather than wait, maysuggesting the possibility of a turnarounin sentiment," the buyer said, adding thaSouth Korea had bought 3,000 tonnes oaluminium ingot of non-specific Westernorigin at a premium of $117 per tonne. [ID:nTOE62204P]

Japanese traders initially hoped for premiums below $120 while some producers kept levels flat from the first quarter.

As agreements started to be reached at $122-$124, producers began lowering their offers to near $125 from around $130 but also effectively put a floor at $122, traders said.[ID:nTKG006666]

"Clearly the premiums are on a downtrend, with the possibility of further declines in July-September," said an official at a company involved in the talks. Another buyer said he concluded his last deal at $124.

Japan's primary aluminium buyers agreed to rises of roughly 7-13 percent in premiums for the first quarter, with the bulk of the premiums for January-March settled at $128 to $130 a tonne, a 14-year high and up from $115-$120 in the fourth quarter.


Japan, which must buy virtually all the metal it needs, imports about 2 million tonnes of primary aluminium every year.

The premium is over the London Metal Exchange cash price, and includes insurance and freight costs.

Aluminium term talks started three weeks ago. The talks are held between the suppliers, which include mining giants such as BHP Billiton (BHP.AX)(BLT.L) and Alcoa Inc (AA.N), and Japanese buyers such as trading houses and aluminium mills. 

Industry sources had said a lack of strong incentives for either producers or Japanese primary aluminium buyers could result in lower premiums, but expected negotiations to be prolonged over the size of any cut.

"Ever since the premiums rose to the three-figure level, talks have dragged on longer as buyers resist settlements at higher levels," said one source involved in the talks.

Inactivity in the spot market recently also made it hard to gauge what would serve as a benchmark for premiums, traders said.

Unlike late last year when robust demand from China and supply concernsfrom Russia tightened market conditions and pushed up premiums, such worries had subsided substantially since then, while Japan's demand outlook remains uncertain with the economy facing greater deflationary pressures.

At the same time, prospects for demand for aluminium, used in products ranging from computers to planes, are improving, underpinned by expectations for growth in India and China, while inventories at London Metal Exchange warehouses tied up by financial deals have slowed flows of supply into the market.

"Aluminium is not in shortage globally, so producers can't be very assertive in setting premiums," said an industry analyst familiar with the talks.

"But since the same producers supply other raw materials, they may see aluminium talks in the same light as others where Chinese presence is overwhelming and sets the tone for talks."Aluminium MAL3 on the LME ended at $2,260 50 on Friday, still about 34 percent below the record high hit in July 2008. (Editing by Clarence Fernandez)

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