December 12, 2012 / 8:50 AM / in 5 years

UPDATE 3-Rio Tinto, Japan set Q1 aluminium deals at $240/T premium -sources

3 Min Read

* Aluminium Q1 deals slip 6 pct from Q4 2012 record of $254 to $255

* Deals represent bottom offer from a producer

* Alcoa, BHP asking for higher terms, yet to settle

By Osamu Tsukimori

TOKYO, Dec 12 (Reuters) - Japanese buyers have agreed an aluminium premium of $240 per tonne with Rio Tinto Alcan for some January to March shipments, down from a record this quarter, reflecting easing demand as the world's third largest economy slips into recession.

The terms, according to three sources, were at the bottom end of a range of offers by producers, below $247 offered by Alcoa and $249 offered by BHP, two of the sources said.

The deals, expected to be agreed as soon as next week, will set a benchmark price for the region. Premiums are paid over the benchmark London Metal Exchange (LME) cash price to secure physical metal.

Still, premiums remain lofty, more than double this year's first quarter terms of $112 and down just 6 percent from a record $254 to $255 for the current quarter.

They have been inflated mainly due to large stocks locked up by banks in financing deals, and behind long queues at warehouses, which make it difficult for manufacturers to access supplies.

"The main reason is lower demand in Japan itself," said Daniel Briesemann, commodities analyst at Commerzbank in Frankfurt.

"Japanese aluminium consumers have gained more power in the negotiations, due to the fact that there is lower (automotive) production in Japan, and therefore lower demand for aluminium. But if we see signs that demand is picking up, I think we will see higher premiums again," he added.

A fall in the fee for buyers in Japan, who are Asia's biggest importers of the metal, will be the first in more than a year.

Demand has deteriorated in the country's domestic auto and electronics sectors, while its exports have been hit by a global growth slowdown and a territorial dispute with China.

Easing Demand

Japan's economy contracted for a second straight quarter in July-September, indicating that weak global demand nudged the export-reliant economy into a mild recession.

Toyota Motor Corp also expects Japan vehicle sales to fall by a fifth next year, in part due to the end of government tax incentives for fuel-efficient automobiles.

"Some deals have settled at $240 with Rio. Others are still in talks," a source at a global aluminium producer said. "(Rio) seems selling quite well so far, better than what they had expected."

Negotiations with Alcoa and BHP are likely to be set some time next week, said a source at a trading house in Japan.

"A benchmark price range of $240-$245 does not look peculiar," the source told Reuters.

Financial deals that lock up stocks typically involve traders buying physical metal and simultaneously selling forward at a profit, while striking a cheap storage deal in the interim.

High premiums and government subsidies have helped keep afloat many smelters that would otherwise have been forced shut by a drop in global prices.

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