Japanese primary aluminium premiums are expected to edge higher in July-September after surging nearly 30 percent in the current quarter as looming supply uncertainty overwhelms weak demand in the region.
Suppliers of so-called good Western aluminium ingots, including Alcoa Inc, could take a strong stance amid uncertainty over supplies from South Africa and New Zealand, with China continuing to tighten controls on exports.
High spot premiums could keep producers bullish, but many Japanese end-users will try to avoid accepting sharply higher prices due to sluggish domestic demand.
Asian traders said demand tends to be slow in the summer in the region, with views that South Korea may not buy much primary aluminium as they increased purchases of aluminium alloy from China.
Supplies are tight. There are also concerns about supplies which involve the Asian region, such as New Zealand, and South Africa, said a trader at a Japanese trading house.
The market is also trying to assess the impact of the Chinese earthquake on the market, he said.
Supply concerns from South Africa due to an electricity shortage have been in place since the previous talks held in February and March.
Last week, Rio Tinto Ltd/Plc said it would cut aluminium output by about 10 percent indefinitely at its 350,000 tonnes a year Tiwai Point, New Zealand, smelter to conserve power.
Producers are scheduled to disclose initial offers to buyers when negotiations begin next week in Japan.
Buyers are hoping premiums will hold near the current quarter's level of around $83 a tonne over the London Metal Exchange cash price, including insurance and freight costs, after they shot up by 30 percent from $65 in the first quarter.
Traders in the Asian region closely follow Japanese quarterly premiums as they set a benchmark for the rest of Asia.
Japan is Asia's largest net importer of primary aluminium, with demand estimated at more than 2 million tonnes a year.
Asian traders expect demand in the region could fall in the summer, while supply was expected to stay tight.
Consumption in Japan has been sluggish, with shipments of aluminium down for the seventh straight month in March due to weak demand in construction and drink cans, industry data showed in April.
Without supplies from China, the Asian market will stay tight in the coming quarter, said a manager at a fabricating plant in southern China's Guangdong province.
Exports of primary aluminium from China, the world's top producer and consumer of the metal, fell 71 percent in the first quarter of this year as the country's export tax was cut by 15 percent, making exports unattractive.
The Chinese customs since February have also tightened controls over exports of tubes and plates made of primary aluminium and classified the items as taxable primary metal.
The move has further reduced supplies from China and supported premiums for spot metal.
Traders said premiums for spot aluminium to northeast Asia destinations stood at $90-$92 a tonne over cash LME prices and $88-$90 to southeast Asia.
But aluminium demand from fabricators in northeast Asia may fall in the summer as exports of semi-finished and finished products drop, traders in Hong Kong and Singapore said.
Manufacturers of aluminium window and door frames in South Korea would not buy a huge volume of primary aluminium in the coming months given that they increased purchases of Chinese aluminium alloys, the manager in Guangdong said.
Demand from fabricators in southeast Asia has fallen in the current quarter from the first quarter on high international aluminium prices, and that may limit bookings for the coming quarter, a trader in Singapore said. (Editing by Michael Watson)
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