Aluminum Buyers in Japan to Pay Record Fee on Supply Drop

Aluminum buyers in Japan, Asia’s largest importer, may pay a record fee to producers after China boosted purchases and global smelters cut output.

Premiums for the three months starting in July may climb more than $30 from fees this quarter between $115 and $127 a metric ton over the London Metal Exchange cash price, four executives, representing smelters and buyers, said before pricing talks this month. The highest fee since Japanese buyers began purchasing most requirements through long-term contracts in 1996 was $125 to $130 for the first quarter of 2010, they said, declining to be identified as negotiations are private.

Premiums are poised to surge as demand is expanding in Japan, led by the auto and construction industries, because of rebuilding from last year’s earthquake and tsunami. Buyers in China, the biggest consumer, boosted imports as they took advantage of international prices that were below domestic levels. Alcoa Inc. (AA), the largest U.S. producer, cut 12 percent of capacity in January and Chief Executive Officer Klaus Kleinfeld said last month the reductions “may not be the end.”

“As demand is picking up, buyers may have no other option but to pay more to secure supply,” said Kunio Ishikawa, a director at the Japan Aluminium Association.

Supply Declines

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.

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, added to the price of immediate-delivery aluminum, climbed to a record 11.5 cents a pound ($254 a ton), while premiums in Europe advanced to $160 a ton.

Aluminum has trimmed this year’s advance to 1.6 percent as the price retreated to a four-month low yesterday amid concerns political turmoil in Greece may worsen Europe’s debt crisis and derail the global recovery. Metal for three-month delivery gained 0.2 percent to $2,053 a ton at 4:22 p.m. Tokyo time, dropping from a five-month high of $2,361.50 reached on March 2.

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, the Japan Aluminium Association forecast in March.

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. Motor vehicle sales for March were the highest since March 2006, up 49 percent from the previous month, and 78 percent from a year earlier, according to the Japan Automobile Dealers Association.

China Imports

China’s imports of primary aluminum surged 177 percent to 63,634 metric tons in March, according to the Beijing-based Customs General Administration. Imports in the first three months amounted to 186,241 tons, rising 149 percent on year.

The increase in Japanese 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.

To contact the reporter on this story: Aya Takada in Tokyo at atakada2@bloomberg.net

To contact the editor responsible for this story: Jarrett Banks at jbanks15@bloomberg.net

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