PREVIEW-Japan eyes further cut in Q4 aluminium premiums

* WHAT: Japanese aluminium term premium talks

* WHEN: Starting this week

* Q4 aluminium premiums seen inching down

By Chikako Mogi

TOKYO, Aug 23 (BestGrowthStock) – Buyers are hoping for a further
cut in premiums for primary aluminium shipments to Japan in the
fourth quarter, but suppliers may again prevent a sharp drop,
citing the material’s tightness and higher premiums outside
Asia.

Aluminium term talks started this week between suppliers,
including mining giants such as BHP Billiton (BHP.AX: )(BLT.L: )
and Alcoa Inc (AA.N: ), and Japanese buyers such as trading
houses and aluminium mills.

“Our stance is unchanged from before in seeking a cut,
because premiums are still historically high,” said an end-user
in Japan. “We hoped for premiums below $120 in the third
quarter and would like to see them closer to $110 in the fourth
quarter.”

Term premiums for shipments in July-September were mostly
agreed at $120 per tonne, down from $122-$124 per tonne in the
April-June period, the second quarterly drop in a row, falling
from historic highs of $128-$130 in the first quarter.

Traders’ forecast for Q4 premiums ranged between $110 and
$120.

Demand for aluminium, widely used in products ranging from
computers and electronics to the food sector, is expected to
slacken later in the year as the yen’s rise to a 15-year high
against the dollar and strong deflationary pressures hit
Japan’s economy.

The scheduled end to the government subsidy for purchases
of environmentally friendly automobiles at the end of September
is also expected to result in the reduction of automobile
output.

“Weaker demand from end-users on economic worries will help
push down premiums,” said a trader at a Japanese end-user.

“While U.S. and European premiums appear to be peaking out,
there is also no strong reason for a sharp cut in Q4. So, I see
$115, a recent low in spot premiums, as one key target,” he
said.

The premiums are over the London Metal Exchange cash price,
and include insurance and freight costs.

South Korea said on Monday it had bought 3,000 tonnes of
primary aluminium ingot for October shipping at a premium of
$113. [ID:nTOE67M04L]
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ For a table of quarterly Japan aluminium premiums, click:

[ID:nTOE65E03E]
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

DISTORTED SUPPLIES

Despite the market overall being flooded with excess
material, worries about tight aluminium supplies persist,
supporting suppliers’ desire to keep premiums high, Japanese
industry officials said.

Financing deals have tied up about 70 percent of LME
aluminium stocks, preventing supplies from hitting the market,
despite LME warehouse inventories hovering near record highs.
(MAL-STOCKS: )

Plans to launch physically backed aluminium exchange-traded
products are also expected to take material out of the market.
[ID:nSGE67H00D]

Worries about supplies from the Middle East have added to
bearish sentiment, although Japanese traders said their
purchases from the region were limited and unlikely to have any
big impact.

Norwegian aluminium producer Norsk Hydro (NHY.OL: ) said this
month it had declared force majeure for aluminium deliveries
from its Qatalum smelter in Qatar after a power failure delayed
the plant’s ramp-up schedule. [ID:nLDE67B1VC] [ID:nLDE6790DN]

Qatalum’s supply concerns have pushed up spot primary
aluminium premiums about $10 in Asia to around $120 per tonne
for good Western metal, the benchmark grades for premiums in
Asia, traders said. [ID:nTOE67I03U]

“Many people are holding onto physical metal and are trying
to push up premiums after the Qatalum shutdown,” said a
supplier. “We are already asking over $120 for Q4 shipments.”

A trader whose firm sells aluminium to China and uses the
metal to make products said, “We have already received some
offers at $120 for Q4 deliveries.”

Japan imports about 2 million tonnes of primary aluminium
every year. End-July aluminium stocks at key ports were at a
reasonable level of 208,200 tonnes. [ID:nTOE67B03N]

“It could be that premiums stay sideways around $120,”
another Japanese end-user said.
(Additional reporting by Polly Yam in Hong Kong; Editing by
Clarence Fernandez)

PREVIEW-Japan eyes further cut in Q4 aluminium premiums