Japan Q1 aluminium premium falls 20% to $177/T -sources

  • Initial offers made by producers were $193-$195/T
  • It marks first quarterly decline in six
  • Reflects lower overseas premiums, slow recovery in car output

TOKYO, Jan 5 (Reuters) - The premium for aluminium shipments to Japanese buyers for January to March was set at $177 per tonne, down 20% from the previous quarter, as local spot premiums and overseas prices eased, six sources involved in pricing talks said on Wednesday.

That is down from the $220 per tonne paid in October-December and marks a first quarterly drop in six. It is also lower than the initial offers of $193-$195 per tonne made by producers.

Japan is Asia's biggest importer of the light metal and the premiums for primary metal shipments it agrees to pay each quarter over the benchmark London Metal Exchange (LME) cash price set the benchmark for the region.

The premiums rose to $130-$220 a tonne in 2021 from $79-$88 in 2020 as global demand picked up from a pandemic-induced slump and container shortages caused shipping delays and freight rate hikes, while output in top producer China slowed due to power disruptions and the government's environment policy.

"But the increase last year was overdone," a source at a Japanese trading company said.

"The drop for this quarter reflected lower spot premiums in Japan and elsewhere in Asia which tracked falls in the U.S. and European markets and were caused by discounts made by international traders to trim their inventories at the end of their financial year," he said.

A slow recovery in automobile output also weighed on the demand outlook, another source at a Japanese end-user said.

Japanese automakers are struggling with persistent parts and chip shortages, including Toyota Motor (7203.T), which said it would suspend production at five domestic factories in January. read more

However, metal prices and overseas premiums are on the rise again after two smelters cut production late last month due to high power prices, fuelling concerns about potential shortages.

Alcoa (AA.N) halted production at its San Ciprian operation in Spain for two years, while Norsk Hydro's majority-owned aluminium plant in Slovakia will cut output to around 60% of capacity.

"With China's production unlikely to recover from power disruptions and not until the end of the Beijing Winter Olympics in February, the aluminium market is expected to become tighter," a third source at a producer said.

The sources declined to be named due to the sensitivity of the talks.

Marubeni, a major Japanese aluminium trader, has predicted Japanese premiums will stay in a range of $140 to $250 a tonne this year.

Reporting by Yuka Obayashi Editing by Andrew Heavens and Mark Potter

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Yuka Obayashi reports on Japan's energy, metals and other commodities. Signal phone number: 81-90-2520-3273