Japan's aluminium prices set to fall

Demand from carmakers threatened by an end to subsidy payments as economic recovery slows

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2 MIN READ
Bloomberg
Bloomberg
Bloomberg

Tokyo :  Aluminium premiums charged by producers to buyers in Japan, Asia's largest importer, will drop next quarter to the lowest in a year as the economic recovery slows and the effects of government stimulus measures fade.

Premiums for the three months ending December 31 were set at $116 to $118 a metric tonne over the London cash price in transactions agreed so far, dropping from $120 to $122 this quarter, said three executives involved in the negotiations. They declined to be identified because the talks were private.

This is the third straight quarter of reduction after premiums reached $125 to $130 in the three months ended March 31, the highest level in at least 14 years. The fee will decline to the lowest since the July-to-September quarter last year, when premiums were set at $68 to $75.

Oversupply

"The market is oversupplied, with a global glut estimated at about 2 million tonnes for this year," said Akio Shibata, chief representative at Marubeni Research Institute. "Demand from advanced economies is losing steam as recovery slows."

Demand for the metal from carmakers is threatened by an end to subsidy payments by Japan's government to buyers of fuel- efficient models, while supplies in Asia are ample, with increased shipments from Middle Eastern and Chinese producers.

Car sales in Japan are expected to plunge 23 per cent in the six months beginning in October from a year earlier, according to the Japan Automobile Dealers Association. The government has ended its incentive plan under which consumers can apply for a 250,000 yen ($2,985) subsidy if they scrap a car more than 13 years old to buy a more fuel-efficient one.

The Prius hybrid made by Toyota Motor Corp, which contains more aluminium than conventional cars, will likely bear the brunt of plunging demand as it has benefitted the most from the subsidy programme, car dealers said.

Demand from the auto industry represented 14 per cent, or 166,265 tonnes, of Japan's total shipment of rolled aluminium products in the seven months ended July 31, according to the Japan Aluminium Association. The volume increased 86 per cent from the same period last year.

Sales of cars, trucks and buses rose 47 per cent to 290,789 in August from a year ago, according to the Japan Automobile Dealers Association. It was the biggest increase since December 1972, as buyers rushed to take advantage of government subsidies before their expiry this month.

Supply in Asia increased as China, the world's biggest producer and consumer of aluminium, exported more of the metal than it imported as a surge in production added to a glut.

China became a net exporter of the metal in April for the first time since the end of 2008.

Shipments also expanded from Emirates Aluminium Co, a joint venture between Abu Dhabi state-owned investment company Mubadala and Dubai Aluminium Co, as trading company Itochu Corp began delivery to Japan this year as a sales agent for the smelter.

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