Japan Aluminum Premium Slumps by Most in Seven Years

By Aya Takada

Dec. 12 (Bloomberg) -- Aluminum producers will cut the fee they charge Japanese buyers by as much as 27 percent, the biggest reduction in seven years, as a recession saps demand in Asia’s largest importer of the metal used in cars and houses.

The premium, a regional benchmark, will fall to $55 to $58 a metric ton over the London Metal Exchange cash price for the three months to March 31, down from $75 to $77 a ton this quarter, according to three executives involved in the talks. They declined to be identified as the negotiations were private.

The premium fell for a second quarter to the lowest in five years. The slump is the largest since July-September of 2001 as the world’s second-biggest economy entered its first recession in seven years, spurring manufacturers to slash output as consumers spend less on vehicles, electronics and houses.

“Carmakers are cutting output on an unprecedented scale, leading to a slump in aluminum demand as the industry is one of the largest users of the metal,” Akio Shibata, director at Marubeni Research Institute, said by phone.

Japanese trading companies and aluminum mills buy the metal under contracts with producers such as BHP Billiton Ltd., the world’s largest mining company, and Rio Tinto Group. The premium applies to so-called Good Western-grade ingot imported for processing in Japan and includes insurance and shipping. The amount is levied on top of the LME price for immediate delivery.

One of Japan’s largest rolling mills will not purchase any of the aluminum for the January to March quarter under contracts because of rising inventories amid the recession, a company manager said. He declined to be named as talks are confidential.

Auto Slump

Shipments of rolled-aluminum products to the car industry plunged 12 percent in October to 26,766 tons from a year earlier, according to the Japan Aluminium Association. The drop was the largest since August 1998, when shipments to the industry fell 13 percent, said Koji Iida, an association spokesman.

“Shipments may keep declining in the first half of next year,” Iida said by phone. “It’s hard to predict when the contraction will be over as the outlook for global economies looks quite uncertain.”

Toyota Motor Corp. and rivals are accelerating production cuts after sales slumped the most in 34 years in Japan in November. Sales in the U.S., the largest export market for Japanese carmakers, also plunged at the steepest annual pace in 26 years last month. The U.S. Senate rejected a $14 billion bailout plan for the country’s automakers, threatening millions of jobs and a deepening of the global recession.

Product Shipments

Japan’s rolled aluminum product shipments fell 1.4 percent from a year earlier to 1.92 million tons in the 10 months ended Oct. 31 as demand from builders, the largest consumer of Japanese aluminum products, deteriorated because of a slump in the property market amid the credit crisis.

Construction represented almost a quarter of aluminum product demand in the 10 months, while the auto sector accounted for 14 percent, according to the association.

Japanese demand for primary aluminum is forecast to drop 1 percent from a year earlier to 2.26 million tons next year, the lowest since 2003, according to Marubeni Corp., Japan’s biggest importer. It is the third straight year of decline.

Aluminum for delivery in three months lost 2.2 percent to $1,528 a ton at 4:20 p.m. in Tokyo. Prices reached a five-year low of $1,478 on Dec. 9, losing 56 percent from a record $3,380.15 on July 11. Metal for immediate delivery in London rose 2.6 percent to $1,522.25 a ton yesterday.

Diane Collier, a spokeswoman for Rio in Brisbane, where the company’s Australian aluminum division is based, could not be reached when telephoned. Kelly Quirke, spokeswoman for Melbourne- based BHP, said she could not confirm the premiums immediately.

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