RPT-UPDATE 1-Producers seek record aluminium premium in Japan-sources

Mon Feb 24, 2014 3:53pm EST

By Yuka Obayashi

TOKYO Feb 24 (Reuters) - Some big aluminium producers have pushed up their proposed premiums on primary metal to Japanese buyers by 45-47 percent to a record $370-$375 per tonne for April-June shipments, four sources involved in quarterly pricing talks said on Monday.

Japan is Asia's biggest importer of the metal, and the fee sets the benchmark for the region.

The offers, jumping from $255 per tonne in the previous quarter, come as premiums have also soared in Europe and the United States due to smelter shutdowns and financing deals, which have squeezed the availability of aluminium in the spot market.

The latest negotiations began this month between Japanese buyers and miners including Rio Tinto Ltd and United Company Rusal Plc and are expected to continue to next month.

Rio recently sent a letter to its Japanese clients, seeking a premium of $375, while Rusal offered $370 earlier this month, according to the sources.

Premiums are paid over the London Metal Exchange cash price to secure physical metal.

Premiums paid in Europe raced to record highs early in February, up more than 30 percent from the beginning of the year, and have remained at high levels of around $360 a tonne above the LME cash aluminium price .

Still, they are below levels in North America, where Midwest aluminium premiums rose to a record 20.5 cents per lb ($452/tonne) earlier this year.

"Producers are saying that they need to raise the premiums as high as the other regions as physical metal supply is tight," according to three sources at aluminium users.

"To offset weaker metal prices, producers need higher premiums. Otherwise, we can't afford to pay production costs," a producer source said.

But buyers were reluctant to accept the high offers.

"These offers are insane. Premiums in the Midwest are now falling, and aluminium inventories at Japanese ports show no tightness," a user source said.

Premiums in North America have slipped back to around 19.5 cents/lb from the record 20.5 cents/lb, according to a trader.

Aluminium stocks held at three major Japanese ports were 266,700 tonnes at the end of January, up 1.5 percent from a month earlier, trading house Marubeni Corp said earlier this month.

Another trader, however, said the buyers may be forced to accept a hike.

"Producers look committed to win higher premiums this time. I am afraid premiums paid in Japan will likely move higher until the LME metal price rebounds as producers intend to secure somewhere between $2,000-$2,200 (per tonne) in total," he said.

For the January-March quarter, Japanese buyers mostly agreed to pay a premium of $255 per tonne, up at least 3 percent from the prior quarter and matching a record high hit in 2012.