Aluminum buyers in Japan, Asia’s largest importer, are set to agree on a record fee next quarter as global producers reduce output and rates in the United States and Europe surge, said three executives who will start price negotiations next week.
The surcharge for the three months starting in April may exceed $350 a metric ton over the London Metal Exchange cash price, according to the executives, who represent buyers and sellers and asked not to be identified because they aren’t authorized to speak to the media. That is a gain of as much as 37 percent from the high of $255 to $256 this quarter.
United Co. Rusal, the world’s biggest producer, said Tuesday it plans to cut output by 10 percent to 3.5 million tons in 2014, the lowest level in at least eight years. Alcoa Inc., the largest U.S. producer, said Monday it will close a smelter in Australia. Premiums in the United States and Europe jumped to all-time highs last month as inventories were locked in financing deals and made unavailable to users.
“Japanese buyers will have no other options but to pay record fees to producers,” said Naohiro Niimura, a partner at Market Risk Advisory Co., a research company in Tokyo. “Otherwise, producers will divert aluminum to North America, where they can sell the metal for much higher premiums than in Asia.”
Aluminum for delivery in three months on the LME touched $1,671.25 on Feb. 3, the lowest since July 2009. Prices have fallen 2.1 percent this year and traded at $1,762 a ton Thursday in Tokyo.
The U.S. Midwest premium surged to a record 20 cents to 21 cents a pound before retreating to 18 cents to 19.50 cents on Wednesday, according to Harbor Intelligence, an Austin, Texas-based researcher. The premium in Rotterdam, including import duties into the European Union, was $350 a ton, London-based researcher CRU said on Feb 5.
Premiums cover a purchase of specific quality of metal in a particular location, reflecting local supply and demand. Financing transactions involve buying metal for nearby delivery while making a forward sale to benefit from a market in contango, when prices rise for future delivery.
Rising electricity costs and low LME prices are squeezing earnings of aluminum smelters, and as much as 3 million tons of capacity may be cut by 2015, according to Bloomberg Industries.
Alcoa is shutting the 50-year-old Point Henry smelter in Geelong, 74 km southwest of Melbourne, reducing its global smelting capacity by 190,000 tons to 3.7 million tons. Japanese companies that bought the metal from the smelter will have to find alternative suppliers, said the executives.
Record premiums add to costs for fabricators, including Tokyo-based UACJ Corp., the third-largest mill after Alcoa Inc. and Novelis Inc., with production capacity exceeding 1 million tons a year.