Alcan seeks record high aluminium premium from Japan buyers

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Reuters reported that Rio Tinto Alcan has written to Japanese buyers asking them to pay a record premium of USD 200 per tonne for July to September primary aluminium shipments, citing tight supplies.

Two sources directly involved in the talks said compares with average premiums of USD 121 to USD 122 paid over the London Metal Exchange cash price in the current quarter. Buyers pay a premium in addition to the LME cash price to cover freight and insurance and to reflect regional supply and demand.

The demand was made in a letter sent late last week ahead of the official start of negotiations this week. The talks are set to continue for the coming three to four weeks. Supplies are tightening fast after struggling aluminium producers, squeezed by rising power and labour costs and weak prices, shut down smelters and cut back on output earlier this year.

Alcan cited relatively solid demand and the low likelihood of banks releasing aluminium stocks held through financial deals. Such financial deals in which traders buy physical metal and simultaneously sell forward at a profit while striking a warehouse deal to store it cheaply in the interim have recently become more profitable as the difference between nearby and forward prices has widened.

Japanese buyers are resisting such a steep increase in premiums, citing uncertainties over demand in the summer, given a potential decline in run rates at aluminium plants due to power shortages. Japan's output of rolled aluminium products in March rose 3 percent from a year earlier, the first rise in 13 months, on strong demand from auto and tin industries.

Japan is the biggest importer of aluminium due to a lack of smelters, though its consumption of around 2 million tonnes per year accounts for only about 5% of global demand.

Russia's UC RUSAL Plc, the world's biggest aluminium producer, posted this month an 84 % drop in Q1 net profit as prices fell. BHP Billiton, the world's largest miner would consolidate its stainless steel materials and aluminium divisions into a single business unit of larger scale, ready to benefit from future growth in emerging economies.

Source - Reuters