Q4 MJP aluminium premium talks prolonged on low demand

Continued low demand for aluminium in Japan, unchanged since August, has weighed on fourth-quarter negotiations for the main Japanese ports (MJP) aluminium premium, which started around August 24.

Multiple sources reported on Monday September 6 that the first producer to extend the offer of $230 per tonne has put back its quarterly negotiation deadline by one week to September 10, but it will not lower its offer.

This has come at a time when initial fourth-quarter offers have emerged at $230 per tonne, almost 30% higher than early third-quarter offers.

The quarterly premium had already reached a six-year high in third-quarter negotiation this year. Fastmarkets settled its aluminium P1020A (MJP) quarterly premium, cif Japan, for supplies in the third quarter of 2021, at $172-185 per tonne over the London Metal Exchange cash price.

Aluminium producers typically sign long-term annual contracts with consumers to supply a certain tonnage every month, but premiums are re-negotiated every quarter.

Fewer firm bids from market participants have been reported to Fastmarkets for this quarter’s talks, with traders citing unchanged demand over the past six weeks as the main factor stalling fourth-quarter negotiations.

Trades in the domestic market have also been scant in the past month, with the latest reported deal for around 200 tonnes at $180-190 per tonne on a delivered basis, which would be equivalent to around $160-170 per tonne on a cif basis. This was still $13.50 per tonne below the MJP third-quarter settlement this year.

Aluminium demand typically peaks in late July following an increase in demand for canned beverages and air-conditioners during the hot summer weather. But a decline in general manufacturing activity and in the automotive sector was preventing the recovery of demand after the seasonal peak.

“The automotive sector in Japan has been hit hard by the shortage of [semiconductor computer] chips. Even car giant Toyota has had to reduce output at around 10 of its plants. Aluminium usage in construction is also flat currently, hence the overall weak market,” a Japanese trader said.

On September 1, the au Jibun Bank Flash Japan Manufacturing Purchasing Managers’ Index (PMI) was 52.7, slipping from 53.0 a month earlier, signalling softness in month-on-month growth.

Even the recent re-opening of the import arbitrage window into China failed to spur immediate buying interest from Japanese buyers. According to Fastmarkets’ calculations, the profit on the aluminium import arbitrage on September 3 was $17.68 per tonne, after hitting a record high of $153.65 per tonne on August 31.

Several traders saw the arbitrage window as firmly re-opened, and offers into China on a cif Shanghai basis rose by around 30% in two weeks, to $200 per tonne from the $155 per tonne heard when the arbitrage window was shut.

Producers were heard to be keeping their offers firm, with high global aluminium premiums opening possible alternative markets outside of Japan.

“Producers will probably not lower their offers because they can sell at $300 per tonne in Europe,” a Japanese source said.

Fastmarkets assessed the aluminium P1020A premium, in-whs dup Rotterdam, at $300-310 per tonne on September 3, up from $295-305 per tonne a week before.

The corresponding aluminium P1020A (MJP) spot premium, cif Japan, was assessed at $160-180 per tonne on the same day, narrowing upward by $10 per tonne from $150-180 per tonne on August 27.