Producers seek $255-256/T aluminium premium in Japan -sources

By Yuka Obayashi

TOKYO, Nov 28 (Reuters) - Some big aluminium firms have offered Japanese buyers a premium of $255-256 a tonne for January-March shipments, below the offer from top producer United Company Rusal (HKSE: 0486.HK - news) last week but still around a record high, four sources involved in the talks said on Thursday.

Japan is Asia's biggest importer of the metal and the premiums for primary metal shipments it agrees to pay each quarter over the London Metal Exchange (LME) cash price set the benchmark for the region.

The latest quarterly pricing negotiations began late last week between Japanese buyers and miners including Rusal, Rio Tinto Ltd , Alcoa Inc (NYSE: AA - news) and BHP Billiton (NYSE: BBL - news) . They are expected to continue into next month.

Rusal said last week it had offered January-March shipments of the metal to Japanese buyers at a premium of $270 per tonne.

"Another big producer offered $256 per tonne this week while another major producer proposed $255 per tonne," one end-user said.

The offers made this week are about 3-5 percent higher than the premiums paid by Japanese firms in the October-December quarter at $245-247 per tonne over the LME cash price. Rusal's offer represents an increase of about 10 percent.

If accepted, these offers would match or exceed the record $254-255 a tonne for the October-December quarter of 2012 when industrial consumers competed with investment demand for the metal as bottlenecks at warehouses monitored by the LME led to long queues for delivery.

"The miners' reasons for the hike are the recovery of spot premiums in Europe and the United States, supply disruption in Saudi Arabia and healthy demand in Japan," the end-user said.

Alcoa said in October that the massive smelter at Ma'aden, Saudi Arabia, had temporarily shut down one of two potlines due to problems during ramp-up.

Buyers see no justification for a rise in premiums.

One end-user said his company would argue that it did not get any benefit from the lower overseas premiums in the previous quarter. "In any case, Rusal's $270 is way too high," he said.

And one trader said: "There is no reason for the premium to rise. We don't expect supply to get tighter as many buyers have piled up inventories."

"Overall business sentiment has improved thanks to the 'Abenomics' stimulus programme, but actual demand has not picked up much," he added, referring to the expansionary economic programme of Japanese Prime Minister Shinzo Abe.

The LME, the world's biggest industrial metals marketplace, announced a tougher warehouse policy on Nov. 7 to cut queues for delivery to a maximum of 50 days from over a year in some cases, after complaints from metal buyers about the high premiums they had to pay.

But it may take several years for the queues to disappear, lending support to premiums.