Japan Aluminum Buyers Said to Pay Record Fee on Output Cut

Sep 04, 2014 10:27 pm ET

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Sept. 5 (Bloomberg) -- Aluminum buyers in Japan, Asia’s biggest importer, agreed to pay premiums of $420 a metric ton in the coming quarter, according to three executives who represent buyers and sellers. That’s up from a range of $400 to $408 a ton this quarter and a record high for a fourth consecutive time.

Buyers in Japan will pay the surcharge above the London Metal Exchange cash price for the three months beginning in October, said the executives, who were involved in the negotiations and asked not to be identified because the information is confidential. Japanese buyers and suppliers negotiate the premiums quarterly.

Premiums to Japan surged 71 percent this year and reached records every quarter. Alcoa Inc., the largest U.S. aluminum producer, said Aug. 25 it will permanently close an Italian factory that it says is too expensive to operate, reducing its annual smelting capacity by 150,000 tons to 3.6 million tons. The aluminum industry has closed or curbed output at more than 50 smelters outside of China since 2009 and global demand will exceed output by 579,000 tons this year and 619,000 tons in 2015, Goldman Sachs Group Inc. said in a report July 23.

“Rising costs for electricity and labor will accelerate output cuts,” said Naohiro Niimura, partner at Market Risk Advisory Co., a researcher in Tokyo. Niimura forecasts worldwide production will almost be balanced with consumption this year, revising his prediction in June for 1.21 million-ton surplus.

Bull Market

The metal used in everything from cars to beverage cans entered a bull market on the LME in July and reached an 18-month high of $2,119.50 a ton on Aug. 29. Futures for delivery in three months were little changed at $2,106 a ton at 11:20 a.m. Tokyo time

Alcoa’s Italian factory is the third permanent closing announced by the company this year, following its 190,000-ton Point Henry smelter in Australia and the 84,000-ton Massena East smelter in New York.

Aluminum production in Brazil, owner of the world’s third- largest ore reserves, fell in July to the lowest level in data going back to 1996. The country’s worst drought in decades drained reservoirs used to run hydroelectric generators that supply power to extract aluminum.

Premiums cover a purchase of specific quality of metal in a particular location, reflecting local supply and demand. Record fees boost costs for fabricators including UACJ Corp., Japan’s largest mill.

Aluminum imports by Japan expanded 19 percent to 1.02 million tons in the first half of 2014 from a year earlier, according to the Japan Aluminium Association. Australia was the biggest supplier to Japan, shipping 235,500 tons. Russia was the second-largest with 153,720 tons.