NEWSBREAK: Fastmarkets settles Q4 MJP aluminium premium at $215-220/t

Fastmarkets has settled its premium for the supply of aluminium to main Japanese ports (MJP) in the fourth quarter of 2021 at $215-220 per tonne over the London Metal Exchange cash price.

The fourth-quarter premium, at $215-220 per tonne, is 21.8% higher than the third-quarter benchmark of $172-185 per tonne and almost three times the $88-per-tonne premium in the fourth quarter of 2020.

The aluminium P1020A (MJP) quarterly premium, cif Japan has climbed for five straight quarters, reaching repeated record highs since the second quarter of this year after settling at $148-149 per tonne on March 29, 2021.

Over 40,000 tonnes of producer-to-consumer deals, not including double counting, were reported to Fastmarkets during the quarter – around 10% less than last quarter.

The majority of business reported to Fastmarkets was at $215 and $220 per tonne, verified by various counter parties on both ends of the transactions. A non-producer deal of standard tonnage was concluded at $220 per tonne.

Other deals were reported by one side of the transaction between $185-190 per tonne. But the majority of market participants told Fastmarkets that they believed the bulk of fourth-quarter business was concluded at $215 per tonne and above.

The settlement is in line with Fastmarkets’ methodology, which requires a minimum total quarterly transaction volume of 30,000 tonnes to be reported throughout the negotiation period with confirmed deals from at least one producer, one consumer and one trader. The benchmark is assessed based on deals reported, as well as bids and offers, giving a weighted preference to reported transactions.

While quarterly negotiations traditionally take place between major overseas producers and Japanese end users, traders have become more active in transacting volumes in recent years. 

High global premiums support high initial offers, settlement
Premiums for this quarter have continued their upward trajectory, well supported by record-high spot aluminium premiums in the United States and robust premiums in Europe. Fastmarkets assessed the aluminium P1020A premium, ddp Midwest US at 34.75-36 cents per lb on Friday October 1; it has reached repeated record highs since April when it first topped the previous all-time high of 24.00-24.25 cents per lb from early 2015.

The daily assessment of the aluminium P1020A premium, in-whs dup Rotterdam was $295-310 per tonne on Friday. It has also reached repeated record highs since March this year.

Initial MJP producer offers of $230 and $250 per tonne were close to a third higher than the third-quarter settlement, raising eyebrows. Producer offers quickly encountered resistance due to soft market fundamentals, with the Chinese import arbitrage just turning profitable after three months of losses.

Negotiation deadlines were postponed at least twice because producers were hesitant to lower initial offers even in the face of soft demand.

“Based on current global premiums, suppliers will say $220-250-per-tonne offers are in fact, a bargain, otherwise they can move tonnages to alternative markets who will pay up. As such, producers have this idea that they’re doing buyers a favor,” a Southeast-Asia based trader said.

Other market developments in the year include export duties on Russian-origin aluminium effective from August 1 and ongoing supply curbs and recent power outages in China, which have removed supply from the market. Sources expected the developments to boost regional prices but they did not have a strong impact on the Japanese market.

Domestic demand still muted
Buyers in Japan held back from trading, citing severe cuts in automotive production and the ongoing shortage of semiconductor chips to be impediments in securing volumes at higher premiums. Toyota’s August production in Japan slipped for the first time in four months, by 39.3%, with further reductions likely until 2022. Honda’s August production volumes in Japan also plunged by more than 60% on a yearly basis.

Spot activity has picked up with the opening of the Chinese arbitrage window in August, but its upside was capped by a volatile aluminium import arbitrage into China. Fastmarkets calculated the import arbitrage at a loss of $49.49 per tonne on September 30, compared with a $75.90-per-tonne loss a week earlier.

Most Japanese consumption typically takes place in the first half of the year; the hot summer period increases consumption of canned beverages and demand for air conditioning systems, before demand softens in the following months, sources said.

Alice Mason in London contributed to this story.