Sumitomo Corporation, Japan’s one of the largest global general trading companies, and a diversified corporation forecast that the Japanese aluminium premium to rise to $90 a tonne in the October-December quarter, from $79 this quarter, as industry demand and stock-financing deals return, as stated by a company manager on 14th August’20.
Japan stands as Asia's biggest importer of aluminium and the premiums it agrees to pay over the London Metal Exchange (LME) cash price each quarter for primary metal shipments set the benchmark for the region.
The aluminium premium of Japan for July to September came to $79 a tonne, down 3.7% from the prior quarter as the COVID-19 pandemic disrupted manufacturing activity.
Yasushi Miyachi, Manager of Sumitomo's light metals trading team, said: "But premiums are likely to climb for October to December as metal demand from the key automobile and construction sectors is anticipated to recover."
“An increase in stock financing deals, using warehouses in Malaysia, Singapore and South Korea, by speculators who are taking advantage of super-low interest rates to borrow money will also limit the supply of physical metals”, he said.
The LME's contango permits speculators to lock in a guaranteed return simply by buying cash metal and selling it forward while holding the metal in the warehouses.
“The collapse in manufacturing activity is set to push the global aluminium market into a 3.45 million tonne surplus this year, but the surplus is heading to the warehouses," Miyachi said.
“More potential imports of the metal by China, which has historically been a net exporter but has become an importer in the past few months for the first time since 2009, will also, lend support”, he added.
He concluded by saying: “Still, Japan's imports of the primary are predicted to fall about 15% this year due to slumping demand during the COVID-19 crisis.”
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