Bloomberg News

Aluminum Fee to Japan at One-Year High on Post-Quake Demand

June 08, 2011

(Adds analyst comment in fourth paragraph.)

June 8 (Bloomberg) -- Aluminum buyers in Japan, Asia’s largest importer, agreed to a 6 percent gain in premiums charged by suppliers to the highest level in a year as the nation rebuilds from a record earthquake, boosting consumption.

Premiums for the three months ending Sept. 30 were set at $120 a metric ton over the London Metal Exchange cash price in transactions agreed so far, compared with $113 this quarter, said three executives involved in the negotiations. They declined to be identified because the talks were private.

The fee increased after premiums paid by buyers in North America climbed to a record, making it viable for producers to shift the metal away from Asia. Premiums in the U.S. surged to a record last month at 9 cents a pound ($198 a ton), driven by a delay in moving stockpiles out of warehouses, and those in Europe are close to the highest ever, at $215 a ton duty-paid basis in Rotterdam, according to London-based researcher CRU. The gain in premiums may boost costs for fabricators such as Furukawa-Sky Aluminum Corp. and Sumitomo Light Metal Industries Ltd., Japan’s two biggest mills.

“The negative influence from the disaster on aluminum demand is beginning to fade,” said Tomomichi Akuta, research analyst at Mitsubishi UFJ Research & Consulting Co. in Tokyo. “Consumption in Japan will likely pick up this month.”

Inventories of the metal monitored by the LME surged to 4.7 million tons in May, about a quarter of which is stored in Detroit, the U.S. city associated with the automotive industry.

Toyota, Honda

Toyota Motor Corp., the world’s biggest carmaker, and rivals Honda Motor Co. and Nissan Motor Co. are working to restore full operations after the March 11 temblor and tsunami damaged factories and caused parts shortages.

A survey by the trade ministry showed Japanese manufacturers planned to increase production 8 percent in May and 7.7 percent in June after a record drop in March, signaling the economic recovery may take hold later this year. Prime Minister Naoto Kan is considering a second extra budget for reconstruction after parliament approved a 4 trillion yen ($49 billion) package in May.

“Japan is still weak so will not absorb the metal,” Marco Georgiou, head of aluminum research at CRU, said in an e-mailed reply to Bloomberg yesterday.

Aluminum product shipments to Japan’s construction industry, which consumes more than 60 percent of the nation’s extruded products, increased in April for a ninth straight month.

Sekisui House Ltd., Japan’s second-largest home builder, expects the nation’s biggest housing boom in at least 15 years after the record earthquake, Chairman Isami Wada said in an interview in May. Aluminum is used for window frames and doors.

Power Rationing

Aluminum product shipments to builders expanded 11 percent from a year earlier to 171,210 tons in the first four months of this year, data from the Japan Aluminium Association showed.

Demand is also increasing as manufacturers are raising output before power rationing starts next quarter, said Kunio Ishikawa, director at the association.

Japan ordered industrial power users to cut electricity consumption by 15 percent starting July 1 to help cope with shortages after the nation’s largest quake and tsunami crippled a nuclear station in Fukushima. The restrictions are to take effect through Sept. 22 in areas covered by Tokyo Electric Power Co., an operator of the stricken power plant.

“The regulation spurred companies such as beverage can makers to accelerate production as power shortage may force them to slow operations during the summer,” Ishikawa said. Can producers are the largest user of flat-rolled aluminum products in Japan, consuming 34 percent of the total shipments.

Recovering Demand

Demand from automakers may recover next quarter after slumping 29 percent in April and 20 percent in March, Ishikawa said. Toyota sees its domestic production will recover to 90 percent of normal levels this month as parts supply is improving at “a better pace than expected,” spokeswoman Shiori Hashimoto said June 1.

Toyota said on May 27 its output in Japan fell 78 percent to 53,823 vehicles in April, the largest slump since 1976, while global output dropped 48 percent.

Aluminum for three-month delivery on the LME dropped 0.4 percent to $2,676 a ton at 12:15 p.m. Tokyo time. The price climbed to $2,803 on May 3, the highest since 2008, as higher oil boosted production costs and a power shortage curbed supply.

Japanese aluminum buyers pay a premium in addition to the London Metal Exchange cash price to cover freight and insurance and to reflect regional supply and demand. Some third-quarter transactions are still being negotiated with offers as high as $128 a ton, the executives said.

The fee, applied to so-called Good Western-grade aluminum ingot, increased for the first time since the first quarter of last year. Premiums stabilized this quarter after dropping to the lowest level in 18 months in the three months ended March 31.

The biggest suppliers of Western ingot include Rio Tinto Plc, BHP Billiton Ltd. and Alcoa Inc.

--With assistance from Chanyaporn Chanjaroen in Singapore. Editors: Jarrett Banks, Jake Lloyd-Smith

To contact the reporter on this story: Aya Takada in Tokyo at atakada2@bloomberg.net

To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net


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