Japan Q2 aluminium premium at $248-250/T

Japan's aluminium premiums for April-June shipments were mostly set at $248 to $250 per tonne, up from $240 to $245 in the previous quarter, as demand picks up after the winter slowdown, three sources directly involved in the talks said on Thursday.

Japan is Asia's biggest importer of aluminium and the premiums for its imports, agreed each quarter, set the benchmark for the region.

Premiums are paid over London Metal Exchange (LME) cash aluminium prices to secure physical metal on a cost, insurance and freight basis to the main Japanese ports.

The rise reflects an expected improvement in demand amid hopes for economic recovery in the world's third-biggest economy, and comes after buyers cut stocks at the March end of the financial year.

Premiums reached record highs last year because although the global aluminium market is in a surplus, most of the material is tied up in financing deals and is not available to market.

"I don't think there's much sign that demand in Japan is surging, this is mostly due to financing deals -- premiums are twice what they are traditionally," said analyst Stephen Briggs of BNP Paribas in London.

"Japan has to import all its aluminium, it comes from elsewhere in the world and material is not readily available. There are still surpluses being generated in the aluminium market every day," he said.

In a financing deal, banks or trading houses buy metal, sell it forward and store it cheaply in the interim.

The deals were done between major global producers, such as BHP Billiton, Alcoa Inc and Rio Tinto Alcan , and Japanese firms, including trading houses that buy on behalf of end-users such as manufacturers of aluminium sash windows, automobiles, cans and electronics.

The talks, which usually settle by around the middle of the month, got protracted to the surprise of many participants, reflecting big differences in both sides, sources said.

"There was a huge gap between buyers and sellers this time," said one trader, explaining why it took longer than usual to set prices. He said talks began with buyers looking for premiums as low as in the $230s and sellers wanting as much as $255.

"Consumers are complaining demand is very slow."

Buyers said the second quarter talks were also delayed because one major producer had not made its offer clear until very late in the negotiations, more than a week after most other deals were set at $248 to $249.

"We were trying to strike deals below $248 till the end, but we couldn't, because some buyers started to sign deals," said a source with a Japanese buyer who declined to be named.

Premiums for shipments into Japan hit records of $254 to $255 a tonne in the fourth quarter of last year, when supply was constrained as consumers competed with investment demand for the metal, and due to bottlenecks at warehouses monitored by the London Metal Exchange.

Aluminium stocks held at three major Japanese ports were at 286,200 tonnes by the end of February, down 9.3 percent from a month earlier, but up 8.2 percent from the same month the year before, trading house Marubeni Corp said a week ago.