Aluminum buyers in Japan, Asia’s largest importer, agreed to pay a record premium to producers next quarter after global smelters cut output, according to five officials with direct knowledge of the talks.
Premiums for the three months starting in July will be $200 to $210 a metric ton over the London Metal Exchange’s price of metal for immediate delivery, compared with $115 to $127 this quarter, said the executives, referring to transactions agreed so far. They declined to be identified because the fee hasn’t been publicly announced.
Premiums are rising as Japanese demand expands, led by the car and construction industries rebuilding from last year’s earthquake and tsunami. At the same time, buyers in China are boosting imports to take advantage of international prices that are below domestic costs.
An average of 68,100 tons of aluminum was produced globally in April, down from 68,300 tons in March, the London-based International Aluminium Association estimates. Output rose as high as 71,000 tons a day in October. The price of metal for immediate delivery on the LME declined 14 percent since March 1 to $1,978.25 a ton, bourse data show.
“Metal purchasing costs for Japanese companies will stay high as rising premiums offset a drop in the LME,” said Naohiro Niimura, a partner at research company Market Risk Advisory in Tokyo. “Their earnings are threatened as they have difficulty passing on costs to consumers amid deflation.”
Shipments to Asian buyers decreased after Norsk Hydro ASA (NHY), Europe’s third-largest producer, cut annual production at its Kurri Kurri smelter in Australia by a third, or 60,000 tons, in January, spurring importers to seek alternative supplies.
Hydro said earlier this month it started talks with workers to shut down the Australian smelter because of falling metal prices and the country’s carbon tax.
Availability in Asia also declined after producers in the Middle East boosted shipments to Europe and the U.S., where the metal traded at higher premiums than Japan. The U.S. Midwest premium climbed to a record 11.5 cents a pound, while premiums in Europe advanced to $170 a ton.
Japan’s shipments of rolled-aluminum products are forecast to gain 2.8 percent to 2.06 million tons for the year to March 31, 2013, the highest level in five years, according to the Japan Aluminium Association.
Demand expansion is led by the auto industry as companies such as Toyota Motor Corp. (7203) and Honda Motor Co. (7267) benefited from surging domestic sales after the government offered subsidies for purchases of fuel-efficient vehicles.
China’s imports of primary aluminum surged 216 percent to 40,347 tons in April, according to the Beijing-based Customs General Administration. Imports in the first four months amounted to 226,588 tons, rising 159 percent on year.
The gain in aluminum fees may boost costs for fabricators such as Furukawa-Sky Aluminum Corp. (5741), Japan’s largest mill. Spokesman Ryu Sawachi said he couldn’t confirm the premium.
The fee is applied to so-called Good Western-grade aluminum ingot. It includes freight and insurance costs, and reflects local supply and demand. The biggest suppliers of Western ingot to Japan include Rio Tinto Group, BHP Billiton Ltd. (BHP) and Alcoa Inc. (AA:US)
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