Japan aluminium premiums likely to stay high, adding to inflation

SUMITOMO CHEMICAL

14/02/2025 06:34

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      Japan's aluminium import decline weakens bargaining power
    

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      Premiums rise, impacting Japan's economy and industries
    

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      US tariffs may disrupt global aluminium supply to Japan
    

  
    By Yuka Obayashi
       TOKYO, Feb 14 (Reuters) - Japan's bargaining power in
quarterly aluminium premium negotiations is expected to weaken
further due to slow imports of primary ingots and as Japanese
companies have sold their holdings in overseas smelters,
industry insiders say.
    That could lead to elevated premiums for importers, adding
pressure to an economy already strained by inflation, rising
interest rates and a weak yen while eroding the competitiveness
of key industries such as automobiles, said Junya Hosaka, light
metals trading team leader at Sumitomo Corp  8053.T .
    The latest data from the Bank of Japan showed that the
inflation rate in January for goods traded between companies
rose by 4.2% on an annual basis, with non-ferrous metals prices,
including aluminium, increasing at a 14.3% annual rate. That
will later factor into higher domestic prices for cans, cars and
other consumer goods.
    Japan is Asia's major importer of the light metal and the
premiums it agrees to pay over the London Metal Exchange cash
price each quarter set the benchmark for Asian buyers. Asia's
premiums are closely watched by global suppliers as they
influence metal flows.
    But Japan's influence in the price negotiations has waned as
primary aluminium imports have nearly halved over the past two
decades amid weakening domestic demand, causing producers to
prioritise the interests of higher-volume buyers. 
    "Declining imports and the retreat of Japanese firms from
overseas aluminium smelting have shifted the power balance,
weakening Japanese buyers' bargaining power and increasing the
market's sensitivity to premiums in other regions," said Eisuke
Akasaka, general manager for the light metals section at
Marubeni  8002.T , a major Japanese aluminium trader.   
    In 2024, Japan's primary aluminium imports were 1.05 million
metric tons, close to the 1.03 million tons imported in 2023,
which were the lowest in over 20 years, government data shows. 
    Falling demand from automakers and reduced construction use
due to the shift to resin in window sashes in buildings for
better thermal insulation has contributed to the recent drop. 
    Premiums for imports in the current quarter were set at $228
per ton, the highest since 2015 and 2-1/2-times higher than a
year earlier. Marubeni predicts that Japan premiums will stay in
a range of $200 to $300 for the rest of 2025 while Sumitomo
forecasts a $200 to $260 range.    
    Japan's offtake volume through equity holdings has declined
to 750,000 tons in 2024 from 1.1 million tons in 2012, according
to Sumitomo data.
    Last year, Sumitomo Chemical  4005.T  sold a 20.64% stake in
New Zealand Aluminium Smelters (NZAS) and 2.46% stake in
Australia's Boyne Smelters to Rio Tinto.  RIO.L   RIO.AX 
Mitsubishi Corp  8058.T  also sold its 11.65% stake in Boyne to
Rio.
    With falling equity stakes, there is the risk that Japan may
not be able to secure the volumes it wants as producers could
divert shipments to higher-premium regions such as North
America, Sumitomo's Hosaka said.
    Additionally, President Donald Trump's imposition of 25%
tariffs on U.S. aluminium imports could increase market
volatility, traders say, warning that shifting metal flows based
on negotiations between the U.S. and producing countries may
tighten supply to Japan.
    "U.S. tariffs are likely to make global aluminium flows
inefficient and drive up costs and premiums," Hosaka said.
    Trump is considering a tariff waiver for Australian imports
and that could mean the country's shipments go to North America
while Canadian metal shifts to Europe to avoid the U.S. levy,
Marubeni's Akasaka said.  
    "That could affect supply to Japan as Australia is Japan's
key supplier," he said.    

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Japan primary aluminium imports    https://reut.rs/3EEvQiT
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 (Reporting by Yuka Obayashi; Editing by Christian Schmollinger)
 ((Yuka.Obayashi@thomsonreuters.com; +813-4520-1265;))