Aluminum Producers Cut Japan Fee, First Drop in Year

5. Mar. 2010
Aluminum producers cut the fee they charge Japanese buyers for the first time in a year as supply in Asia increased after Middle Eastern smelters began production and China restarted idled capacity.

Premiums for the three months ending June 30 have been set at $122 a metric ton over the London cash price in transactions agreed so far, down from $125 to $130 this quarter, said three executives involved in the negotiations. The fee had climbed to the highest level in at least 14 years. The executives declined to be identified because the talks are private.

Aluminum is little changed this year, after rallying 45 percent in 2009, as demand from industrialized nations is slow to recover and supply from new projects becomes available, leading to a global surplus. China, the biggest consumer of the metal used in cars and houses, cut purchases after record imports last year as local smelters resumed production.

"Aluminum stockpiles in China are ample after the nation bought more metal than necessary in anticipation of a demand recovery," said Naoki Mita, manager at Barclays Capital Japan Ltd. Given a slowdown in Chinese imports and increasing output in the Middle East, the market "will be oversupplied in the second quarter," he added.

China's imports of refined aluminum fell to 40,059 tons in January from 42,106 tons in December and 57,565 tons in November. Full-year imports surged to 1.5 million tons as the country's stockpiling agency bought more than 500,000 tons to support domestic smelters and the government's $586 billion stimulus package boosted purchases.

Chinese Smelters

Aluminum smelters in China, the largest producer, restarted as much as 5 million tons per annum of idled capacity in 2009 as profit margins improved with rising prices, according to a Feb. 8 report from Macquarie Group Ltd.

Supply to Asia rose as Norsk Hydro ASA's Qatalum smelter in Qatar started output in December. The plant will be in full production in October.

Emirates Aluminium Co., a joint venture between Abu Dhabi state-owned investment company Mubadala and Dubai Aluminium Co., started production on Dec. 1. Emal, as the venture is called, said its first output was supplied to a local client in February.

Emal agreed to supply the metal to South Korea's Daewoo International Corp., the United Arab Emirates' news agency WAM reported Feb. 10. Initial capacity of the smelter will reach 700,000 tons annually by the end of this year.

Additional Fee

Japanese buyers pay a fee in addition to the LME cash price to reflect local supply and demand and to include freight and insurance. Some deals for the second quarter are still being negotiated with offers at $124 or above, the executives said.

The premium, applied to so-called Good Western-grade aluminum ingot, more than doubled in the past year as lower shipments from Russia and record purchases by China reduced the metal availability in Asia. The fee climbed in the three months to March 31 for a third straight quarter, adding to costs for Japanese fabricators such as Furukawa-Sky Aluminum Corp. and Kobe Steel Ltd.

Aluminum for delivery in three months on the London Metal Exchange gained 0.3 percent to $2,225 a ton at 3:57 p.m. Tokyo time. The price retreated after reaching a 15-month high Jan. 6.

Ryu Sawachi, a Furukawa-Sky spokesman, said today that the company couldn't confirm the premium level. Diane Collier, a spokeswoman for Rio Tinto Group, the world's second-largest aluminum producer, didn't immediately provide a comment when reached by telephone.

[BusinessWeek]