Sept. 9 （Bloomberg） -- Aluminum premiums charged by producers to buyers in Japan, Asia’s largest importer, will drop next quarter to the lowest in a year as the economic recovery slows and the effects of government stimulus measures fade.
Premiums for the three months ending Dec. 31 were set at $116 to $118 a metric ton over the London cash price in transactions agreed so far, dropping from $120 to $122 this quarter, said three executives involved in the negotiations. They declined to be identified because the talks were private.
This is the third straight quarter of reduction after premiums reached $125 to $130 in the three months ended March 31, the highest level in at least 14 years. The fee will decline to the lowest since the July-to-September quarter last year, when premiums were set at $68 to $75.
“The market is oversupplied, with a global glut estimated at about 2 million tons for this year,” said Akio Shibata, chief representative at Marubeni Research Institute. “Demand from advanced economies is losing steam as recovery slows.”
Demand for the metal from carmakers is threatened by an end to subsidy payments by Japan’s government to buyers of fuel- efficient models, while supplies in Asia are ample, with increased shipments from Middle Eastern and Chinese producers.
Car Sales
Car sales in Japan are expected to plunge 23 percent in the six months beginning in October from a year earlier, according to the Japan Automobile Dealers Association. The government has ended its incentive plan under which consumers can apply for a 250,000 yen （$2,985） subsidy if they scrap a car more than 13 years old to buy a more fuel-efficient one.
The Prius hybrid made by Toyota Motor Corp., which contains more aluminum than conventional cars, will likely bear the brunt of plunging demand as it has benefitted the most from the subsidy program, car dealers said.
Demand from the auto industry represented 14 percent, or 166,265 tons, of Japan’s total shipment of rolled aluminum products in the seven months ended July 31, according to the Japan Aluminium Association. The volume increased 86 percent from the same period last year.
Sales of cars, trucks and buses rose 47 percent to 290,789 in August from a year ago, according to the Japan Automobile Dealers Association. It was the biggest increase since December 1972, as buyers rushed to take advantage of government subsidies before their expiry this month.
Increased Supply
Supply in Asia increased as China, the world’s biggest producer and consumer of aluminum, exported more of the metal than it imported as a surge in production added to a glut.
China became a net exporter of the metal in April for the first time since the end of 2008. In July, the nation’s exports increased to 15,925 tons, surpassing imports of 3,518 tons. Smelters ramped up production on expectations that demand will improve as the global economy recovers.
Shipments also expanded from Emirates Aluminium Co., a joint venture between Abu Dhabi state-owned investment company Mubadala and Dubai Aluminium Co., as trading company Itochu Corp. began delivery to Japan this year as a sales agent for the smelter.
Japanese buyers pay a premium in addition to the London Metal Exchange cash price to reflect supply and demand, and to cover freight and insurance. Some fourth-quarter transactions are still being negotiated with bids at $115 or below, the executives said.
The premium, applied to so-called Good Western-grade aluminum ingot, more than doubled last year as fewer shipments from Russia and record purchases by China reduced availability in Asia. The drop in the fee may cut costs for fabricators such as Furukawa-Sky Aluminum Corp.
Aluminum for three-month delivery on the LME dropped 1.4 percent to $2,130 a ton at 3:26 p.m. Tokyo time. The price climbed to an 18-month high of $2,494 a ton April 16.
Diane Collier, a spokeswoman for Rio Tinto Group, said by phone today that she couldn’t comment. Ryu Sawachi, a Furukawa- Sky spokesman, said the company couldn’t confirm the premium.
--Editors: Jarrett Banks
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