* Premiums for July-September shipments up 8-12 pct from
$365-$370 in Q2
* Metal supply tight due to financing demand and smelter
* High premiums also reflect healthy domestic demand
(Adds details of premiums, quotes from sources)
By Yuka Obayashi
TOKYO, July 1 Japanese aluminium buyers will
mostly pay record high premiums of $400-$408 per tonne over
London Metal Exchange prices for July-September shipments, up
8-12 percent from the previous quarter, four sources involved in
the negotiations said.
The jump from the April-June premium of $365-$370
PREM-ALUM-JP, which marked the third straight quarterly gain,
comes as smelter shutdowns and financing deals have squeezed
Japan is Asia's biggest aluminium importer and the premium
for primary metal shipments it agrees to pay each quarter over
the LME cash price sets the benchmark for the region. It
imported 1.8 million tonnes of primary aluminium ingot in 2013.
An end-user source said most deals were done at $405-$408,
while another end-user source said most deals were booked at
A source at one of the producers said most shipments were
booked at $407-$408, with some deals done at $410, while another
producer source said most deals were agreed near $405.
The latest quarterly pricing negotiations began in May
between Japanese buyers, which comprise trading houses and
manufacturers, and global suppliers including Rio Tinto Ltd
, Alcoa Inc, BHP Billiton
and United Company Rusal.
Behind the record premiums, which have nearly doubled from
two years ago and risen five-fold from five years ago, is
tightness in physical metal supply, higher overseas spot
premiums and healthy domestic demand, producer sources said.
Many aluminium producers have cut loss-making capacity or
shut down completely as they struggle with low LME prices, high
energy costs and a flood of new Chinese capacity.
That includes Alcoa's shutdown of Point Henry in Australia,
its Massena East smelter in New York with combined capacity of
315,000 tonnes as well as closures of another 147,000 tonnes of
capacity at two smelters in Brazil.
Persistent appetite for financing deals backed by aluminium
supplies and logjams in releasing metal from storage have also
kept supplies tight.
LME stocks MALSTX-TOTAL are still at above 5 million
tonnes although they are close to 20-month lows.
Premiums to obtain physical aluminium in Europe's spot
market rose to record highs of around $410 for duty-paid
material while the rates in North America have been hovering at
19.50-19.75 cents per lb ($430-$435/tonne), a trader said.
"Producers were bold this time as they can otherwise deliver
the metal to other regions where they can get higher premiums,"
an end-user source said.
Healthy demand for aluminium by Japanese fabricators also
supported the higher premiums, producer sources said.
Japan's demand for aluminium rolled products is expected to
rise 0.6 percent this business year to March 2015 from a year
earlier to 2 million tonnes on robust export demand to China and
Southeast Asia, the Japan Aluminium Association said in March.
The premium, which covers the cost of freight and insurance
and reflects regional demand and supply, came mostly in line
with offers from some of the big producers of $400-$410 while
exceeding the $380-$390 level that some buyers were expecting.
Some buyers, including a major rolling mill, agreed to pay
BHP a premium of $400 per tonne in early June, but the talks
with other producers dragged on till this week as there was a
gap between users' bids and producers' offers, three buyer
"The negotiations went on longer than expected as we were
talking about the highest rates in history and a producer was
insisting on high prices," said a source at a trading firm.
Some buyers are still continuing talks, aiming to come to an
agreement this week.
Graphic on Japanese aluminium premiums and LME prices:
Rio Tinto, BHP and Rusal declined to comment on the
negotiations, while Alcoa was not immediately available for
LME aluminium prices are currently trading around
$1,884 per tonne, sharply below recent highs of $2,800 in May
"Basically the LME prices are not reflecting demand and
supply as financial deals have distorted the pricing mechanism,"
a source at an end-user said. "I am afraid that we may see
another rise in the October-December quarter," he said.
(Additional reporting by Susan Thomas in LONDON and Melanie
Burton in SYDNEY; Editing by Muralikumar Anantharaman)