A Japanese buyer has taken the plunge into third quarter pricing this week, agreeing to pay a global premium of US$127.50 per metric ton above benchmark for shipments through September.
An unnamed source involved in the negotiations said on Tuesday that the agreement had been made, which was below the US$165 to US$180 offers made by producers at the outset of negotiatons.
Third quarter prices came in close to second quarter prices, which ranged between US$125 and US$130 above the London Metal Exchange’s benchmark. The source said that negotiations dragged on longer than normal, as buyers insisted on going down on price as producers sought to drive the price upwards.
“We have agreed with a producer to take a middle ground on the both sides.”
“Producers predicted tighter market due to higher overseas premiums, but buyers were not convinced as domestic demand remained weak with ample inventories,” the source continued.
Demand in Japan for aluminium has been soft of late, and stocks of the metal at local warehouses have swollen as a result. Warehouses in Japan consider 250 thousand to 300 thousand metric tons of aluminium stock to be a comfortable level, but at the end of May the volume rose to 354 thousand metric tons.
Although the initial buy has been set, other buyers are still negotiating price, eyeing a range of US$100 and US$110. A major global producer has cut its offer from US$165 to US$135.
The sources who spoke to Reuters did so on condition of anonymity due to the sensitive nature of the discussions. Typically such negotiations are completed prior to the start of the quarter, but buyers and producers entered the discussion with widely different price expectations, they noted.