Japan seen paying more for Q3 term aluminum

　　Reuters reported that term premiums for primary aluminum shipments to Japan for the July-September quarter may rise to reflect a global trend but buyers will resist any major increase as domestic demand remains weak after a destructive earthquake in March.

　　Premiums for duty-paid physical aluminum in Europe are near record highs, supported by the fact that much material is tightly held, giving suppliers a strong start to negotiations that kick off next week with smelters.

　　A manufacturer who will participate in the talks said that with domestic demand unlikely to recover by the Q3, the Japanese side will stress there is no reason for a rise in premiums. But the suppliers are likely to cite rising premiums in the US and Europe which may divert the material from Japanese buyers.

　　The manufacturer said that the best the Japanese could hope for would be a cut of a couple of dollars but the maximum compromise the suppliers could make would be for a flat premium. Premiums for the April-June quarter were largely settled at USD 113 per tonne, pausing for the first time after a fall of 4 consecutive quarters. Negotiations for the talks will start next week between Japanese buyers such as trading houses and aluminum mills and suppliers, including mining giants such as BHP Billiton.

　　An official at a trading firm said that it may be unavoidable that premiums rise in the Q3 given the increase elsewhere, as suppliers have been separating the issue of Japanese domestic demand and premiums which are set by a trend in the global market.

　　A trader said that some Japanese buyers have been tapping the spot market in April and May but their tender volumes have been small, reflecting sluggish demand. Premiums Japanese buyers can accept under the current circumstances would be levels around the October to December 2010 quarter or around USD 116 per tonne to USD 118 per tonne.

　　The premiums are over the London Metal Exchange cash price and include insurance and freight costs. Japan which has to buy nearly all the metal it needs overseas imports about 2 million tonnes of primary aluminum a year for use in products ranging from computers, planes and electronics to the food sector.

　　Aluminum stocks held at three major Japanese ports rose for the first time in four months in April, reflecting a drop in production following a massive earthquake in March and electricity blackouts stemming from power supply disruptions. The March 11 earthquake and subsequent tsunami swept northeastern Japan and crippled many manufacturing facilities as well as a nuclear plant.

　　Industry officials said that while the aluminum industry itself was not severely affected by the quake and tsunami, end-users were, particularly the automobile industry and until their production returns to normal, demand for aluminum was expected to stay weak. Suppliers have insisted that global demand for the metal remains strong and supplies tight.

　　Although stockpiles have hit all time highs, much of the metal is unavailable because it is tied up in financing deals, keeping physical premiums the price paid on top of the LME's cash contract to take delivery of metal at record levels in Europe and the US.

　　Premiums for duty paid metal in Rotterdam were at USD 210 per tonne to USD 240 per tonne over London Metal Exchange cash prices, traders said, the highest since Reuters records began in 1998. This compared with quotes of USD 200 to USD 230 last month. Premiums for duty unpaid material were at USD 140 per tonne to USD 160 per tonne against USD 130 per tonne to USD 165 per tonne late last month.