Bloomberg News

Aluminum Fee to Japan Cut as Slowing Recovery Curbs Demand

September 01, 2011

(Updates price in 14th paragraph.)

Sept. 1 (Bloomberg) -- Aluminum buyers in Japan, Asia’s largest importer, agreed to a 2 percent cut in fees charged by a major producer, the first drop in three quarters, after recovery from the March earthquake and tsunami lost momentum.

Premiums for the three months ending Dec. 31 were set at $118 a metric ton over the London Metal Exchange cash price in transactions agreed so far, compared with $120 this quarter, said three executives involved in the negotiations. They declined to be identified because the talks were private.

The fee declined as the U.S. economic slowdown and the yen’s rally to a postwar record against the dollar threaten Japan’s export-led recovery. Aluminum supply is abundant as smelters in the Middle East boosted shipments to Asian buyers, intensifying competition with Australian and American producers.

“Slowing global economies may curb growth in aluminum demand,” said Tomomichi Akuta, economist at Mitsubishi UFJ Research & Consulting Co. in Tokyo. “As producers are expanding capacity, the metal will likely remain oversupplied.”

The fee declined for the first time since the first quarter of this year, when Japanese premiums were set at $112 to $113 a ton. The drop in premiums may reduce costs for fabricators such as Furukawa-Sky Aluminum Corp. and Sumitomo Light Metal Industries Ltd., Japan’s two biggest mills.

Imports of refined aluminum dropped 11 percent to 809,573 tons in the six months ended June 30 from 912,390 tons in the same period last year, data compiled by the Japan Aluminium Association showed. Imports jumped 28 percent to 1.72 million tons last year.

Korean Demand

Aluminum demand in South Korea may also deteriorate in the second half of this year amid concerns that the global economy is stalling, said Kim Soo Bong, director of the Korea Nonferrous Metal Association. The nation’s industrial output increased a less-than-estimated 3.8 percent from a year earlier in July, and slid 0.4 percent from June, Statistics Korea said yesterday.

Premiums for Western-origin high-grade primary aluminum shipped into South Korean ports dropped to $104 a ton over the LME cash settlement price in August, from premiums of $113 a ton in February and in May, according to price data available on the website of South Korea’s Public Procurement Service, which manages strategic commodities.

Rolled-Aluminum

In Japan, shipments of rolled-aluminum products dropped 4.8 percent in July, declining for the second straight month, as demand from can makers lost steam and sales to automakers were still weak, data from the Japan Aluminium Association show.

Shipments of flat-rolled products used in cans expanded 3.8 percent to 40,283 tons in July, slower than the 18 percent gain in June, as production declined after power-rationing began in the summer, according to the group. 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 Fukushima nuclear station.

Factory output increased a less-than-expected 0.6 percent in July from June, the slowest gain since March, Japan’s Trade Ministry said yesterday.

Exports fell more than expected in July, the jobless rate rose for a second month and retail sales dropped, signaling the world’s third-largest economy is struggling to recover.

Economic Contraction

New Prime Minister Yoshihiko Noda faces pressure to reverse three straight quarters of economic contraction just as Europe’s debt crisis and elevated U.S. unemployment undermine global confidence and demand. The yen’s advance against the dollar is also threatening the earnings of exporters such as Honda Motor Co. and Denso Corp.

Aluminum for three-month delivery on the LME fell 1.1 percent to $2,443 a ton at 5 p.m. Tokyo time. The price climbed to $2,803 on May 3, the highest level since 2008, as higher oil prices boosted production costs.

Japanese aluminum buyers pay a premium in addition to the LME cash price to cover freight and insurance and to reflect regional supply and demand. Some fourth-quarter transactions are still being negotiated with offers as high as $123 a ton, the executives said.

The fee is applied to so-called Good Western-grade aluminum ingot. The biggest suppliers of Western ingot to Japan include Rio Tinto Plc, BHP Billiton Ltd. and Alcoa Inc.

--With assistance from Keiko Ujikane in Tokyo. Editors: Jarrett Banks, Ovais Subhani

To contact the reporters on this story: Aya Takada in Tokyo at atakada2@bloomberg.net; Sungwoo Park in Seoul at spark47@bloomberg.net.

To contact the editor responsible for this story: Richard Dobson at rdobson4@bloomberg.net


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