UPDATE 1-Most Japan Q1 alum premiums at $112-113/T -traders

* Q1 lowest in six quarters and four quarter of drop in row

* Domestic demand weak but not as bad as previous thought

* High premiums in Europe, U.S. prevent sharper fall

* Quarterly Japan aluminium premiums table [ID:nTOE6BD074]


(Adds details, comments)

By Chikako Mogi

TOKYO, Dec 14 (BestGrowthStock) – Most term premiums for primary
aluminium shipments to Japan for the first quarter of next
year were agreed at $112 to $113 per tonne, down from $116 to
$118 set for the current quarter, traders said on Tuesday.

The January-March 2011 premiums marked the lowest in six
quarters and a fourth straight quarterly drop, reflecting an
uncertain outlook for Japanese domestic demand for aluminium,
used in products ranging from computers to planes.

“Most of our deals were agreed at $112-$113, although we
had hoped for a much lower level,” said one end-user.

Some deals had already been agreed at $112 to $113 per
tonne last week between Japanese buyers such as trading houses
and aluminium mills and suppliers, including mining giants
such as BHP Billiton and Alcoa Inc .

Japanese traders had expected premiums to fall below $110
due to the uncertain outlook for domestic demand.

“We have premiums at $112-$113 mostly, although the level
was not satisfactory for us, as we think premiums below $100
reflect the real state of Japanese demand,” another end-user

At the same time, there was also caution producers may not
accept a big cut in premiums on the Japanese factor alone,
citing inventories at London Metal Exchange warehouses tied up
by financial deals and slowing flows of supply into the
market, and also keeping premiums in Europe and the United
States high.

An estimated two to three million tonnes of aluminium are
held in unregistered inventories worldwide, the Chief
Executive supply in the face of surging global demand, a top
Alcoa official told the Financial Times in November.

Rio Tinto , the world’s biggest aluminium
producer, on Nov. 29 warned large inventories of aluminium
amassed during the global financial crisis were weighing on
the outlook for the commodity over the next few years.

Some Japanese traders said while domestic demand for
aluminium was weak, as car production fell after the
government in September ended subsidies for purchases of
environmentally friendly cars, it was not as bad as they had

“We have settled at $112.5 mostly, which is within our
expectations,” said a trader. “High European and U.S. premiums
prevented suppliers from making a huge exception for Japanese
buyers, but they also needed to consider how much Japanese
buy. And domestic demand has not been as bad as thought to
justify a much bigger decline in premiums,” he said.

Japan, which must buy virtually all the metal it needs,
imports about 2 million tonnes of primary aluminium every year.

An official at the Japan Aluminium Association said while
use of the metal for auto industry has dropped, steady use for
beverages cans and construction have helped offset that drop.

“But data for November may start to show a clearer picture
of weakening demand,” the official said.

Japanese shipments of aluminium products rose in October
for an 11th straight month of year-on-year gains.

Term premiums for primary aluminium shipments to Japan
have fallen about 13 percent through 2010, after hitting
historic highs of $128-$130 in January-March. [ID:nTOE68D04U]

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

(Editing by Clarence Fernandez)

UPDATE 1-Most Japan Q1 alum premiums at $112-113/T -traders