Japan aluminium buyers to turn to spot markets, could crimp annual contracts

UACJ

06/09/2016 05:52

* Japan buyers looking to purchase more aluminium in spot 
markets 
    * Spot premiums have been lower than those set quarterly via 
talks 
    * Some could also push for annual deals based on premium 
benchmark 
 
    By Yuka Obayashi 
    TOKYO, Sept 6 (Reuters) - Japanese aluminium buyers are 
looking to crimp the amount of the metal they purchase via 
annual contracts, instead turning to spot markets where premiums 
have in recent months dropped to their lowest in over seven 
years amid a persistent supply glut. 
    Most aluminium buying by Asia's biggest importer of the 
metal is carried out through annual contracts, with premiums for 
delivered metal set each quarter via negotiations that act as a 
benchmark for the region. 
    But with spot metal premiums falling since hitting this 
year's highs around March, sources at buyers said quarterly 
negotiations had locked them into prices well above those in the 
market. 
    "Lots of inventories are out there and we can get better 
deals if we buy them in spot," said a source at a fabricator, 
adding that the company would likely buy less via annual 
contracts in 2017. He declined to be identified due to the 
sensitivity of the issue. 
    Aluminium stocks at three major Japanese ports slid to about 
300,000 tonnes in July from a record above 500,000 tonnes in May 
2015, but that is still above 230,000-270,000 tonnes in early 
2014. 
    Less contract purchases could be a blow to suppliers such as 
Rio Tinto  RIO.AX   RIO.L , Alcoa  AA.N  and South32  S32.AX  as 
they would likely lose guaranteed sales. Rio declined to comment 
on the issue, while Alcoa and South32 did not immediately 
respond to requests for comment. 
    Japanese contract premiums are expected to hit the lowest in 
seven years in October-December, with key producers offering 
$80-82 per tonne, down 9-14 percent from the previous quarter. 
But buyers are seeking even lower levels, bidding for the low 
$70s given weakening spot premiums at around $70, according to 
sources.  urn:newsml:reuters.com:*:nL3N1BB2P8 
    Premiums are paid over the London Metal Exchange cash price 
 CMAL0 .  
    Major Japanese buyers include traders like Marubeni  8002.T  
and Mitsubishi  8058.T  and fabricators such as UACJ  5741.T  
and Kobe Steel  5406.T . 
    "We intend to ask smelters to change the way we do 
business," said a source at a Japanese trading house that was 
hit by heavy losses on aluminium inventories in the last 
financial year. 
    But a producer warned that "without annual deals, buyers may 
not get as much metal as they want at a time they want if supply 
gets tighter". 
    A Singapore trader who deals into Japan said that the 
country was likely to shift to greater spot purchases gradually, 
at first buying only limited amounts via spot. 
    Meanwhile, a few buyers said they could push for prices 
under annual contracts to be based on a spot premium index, 
removing the need for quarterly negotiations that have been used 
for decades. 
    But most suppliers and buyers said such a shift would be 
difficult as finding an index that accurately reflected the 
state of Japanese markets could be tricky. 
    Japanese buyers and global producers are poised to start 
negotiations over 2017 contracts in November. 
     
 
 (Reporting by Yuka Obayashi; Additional reporting by Melanie 
Burton in Melbourne; Editing by Joseph Radford) 
 ((Yuka.Obayashi@thomsonreuters.com; +813-6441-1798; Reuters 
Messaging: yuka.obayashi.thomsonreuters.com@reuters.net)) 
 
Keywords: JAPAN ALUMINIUM/