* Japan buyers looking to purchase more aluminium in spot
* Spot premiums have been lower than those set quarterly via
* Some could also push for annual deals based on premium
By Yuka Obayashi
TOKYO, Sept 6 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
"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
Less contract purchases could be a blow to suppliers such as
Rio Tinto , Alcoa and South32 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
Premiums are paid over the London Metal Exchange cash price
Major Japanese buyers include traders like Marubeni
and Mitsubishi and fabricators such as UACJ
and Kobe Steel.
"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
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
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
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)