London 06/07/2016 - The benchmark third-quarter premium for aluminium supply contracts in Japan looks likely to settle at $90-93 per tonne after several deals were confirmed in that range, industry sources said.
Two major producers have signed contracts with a customer in Japan at $90 and $91 per tonne above LME cash prices on a cost, insurance and freight (CIF) basis for delivery to major Japanese ports (MJP), one source with direct knowledge of the deals confirmed on Tuesday.
"We've concluded deals at $90 and $91 respectively with two producers," the source said, confirming that some buyers also settled at $93 with a third producer.
"$90-93 is the range [for third-quarter MJP] - all the deals I've seen are within this range," a European trader active in Asia added.
Those deals mark a 21-22 percent decrease from the premium of $115-117 agreed in the second quarter.
Initial deals for the supply of aluminium were sealed at $90 per tonne one week ago with one major producer that typically makes the lowest offer of all overseas producers. The other two large producers initially held out for $92-94 and $100 respectively.
"The latter two changed their offers - now they understand where the market is - but some new offers like $94-95 are still high," a second local trading source noted, adding that a $3-5 gap between the quarterly and spot premiums would be more acceptable.
With aluminium ingots trading in Japan at spot premiums of $80-90 over the past week, many buyers are holding off from signing a contract in the hope that producers will lower their offers below $90 to reflect sluggish demand in Japan and high stocks at its ports, sources said.
"We are sticking to $85 and hopefully we could conclude the deal in July - in theory, we don't have any deadline," a third trading source said, adding that the quarterly benchmark should be in line with the spot number.
"We and many others haven't concluded for the third quarter. Negotiations are still continuing and it's hard to say where the benchmark is," a fourth trader noted.
Japan imports almost its entire annual consumption requirement of around 1.7 million tonnes per year of aluminium ingots or 425,000 tonnes per quarter. It produces only 5,000 tonnes per year of ingots domestically.
Stocks of aluminium ingot at Japan's major ports rebounded to 337,200 tonnes in May from April's 18-month low and rose for the first time since August, according to data compiled by Marubeni Corp.
(Editing by Mark Shaw)