Japan Aluminum Buyers Facing Highest Premiums Since 1996

Aluminum buyers in Japan, Asia’s biggest importer, were asked to accept a 57 percent increase in fees starting in July, as supply decreased after smelters cut output and China boosted purchases.

A producer offered to sell aluminum at $200 a metric ton over the London Metal Exchange cash price for the three months through September, an increase from the $127 surcharge this quarter, said three executives involved in the negotiations. They declined to be identified because the talks were private. Other producers have yet to make offers, they said.

Premiums are poised to surge as demand from the auto and construction industries grows amid rebuilding in Japan after last year’s earthquake and tsunami. The nation’s gross domestic product rose an annualized 4.1 percent last quarter from the final three months of 2011, exceeding all but seven of 27 estimates in a Bloomberg News survey of economists, a government report showed yesterday.

“Higher premiums threaten users’ earnings as they’re having difficulty passing on higher raw-material costs to consumers amid deflation,” said Naohiro Niimura, a partner at research company Market Risk Advisory in Tokyo.

If agreed, the fee would be the highest since Japanese buyers began meeting the bulk of their needs through long-term contracts in 1996, surpassing the previous record of $125 to $130 for the first quarter of 2010. The biggest suppliers to Japan include Rio Tinto Group, BHP Billiton Ltd. (BHP) and Alcoa Inc. (AA)

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.

The increase in aluminum fees would 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.

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

To contact the editor responsible for this story: Richard Dobson at rdobson4@bloomberg.net

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