Sumitomo cuts Q4 LME aluminium price forecast to $1,800 from $2,000

Japanese trading firm Sumitomo Corp has cut its forecast of London Metal Exchange (LME) aluminium prices to $1,800 in the October-December quarter from its January estimate of $2,000 due to rising exports from China and a stronger U.S. dollar. It also lowered its estimate of Japan's aluminium premiums, the surcharge for obtaining physical metal, for the quarter to $100 per tonne from its earlier prediction of $425.

Japan is Asia's top aluminium importer and the premiums for primary metal shipments PREM-ALUM-JP it agrees to pay each quarter over the LME cash price set the benchmark for the region.

"We had thought a combined price of the LME cash level and the premium would not slide much below $2,000. But it has fallen much more than anticipated," told Shingi Yamagiwa, manager of Sumitomo's light metals trading team.

Higher exports of aluminium products from China, some of which are used to remelt and used as raw material, were the biggest reason for the bigger-than-anticipated slide, he said. China's exports of unwrought aluminium and products fell 5.3 percent in January-July from a year ago, but still stayed high at above 2.8 million tonnes.

A stronger dollar and cheaper average smelting cost thanks to a series of closures at high-cost smelters and increased output of new and low-cost smelters were also behind the market slump, Yamagiwa said.

The revised forecast, however, is still above current prices which are trading near 6-year lows at around $1,550 a tonne. "It now looks that it will take longer for metal prices and premiums to recover. But the current level is too low," he said, adding the combined prices of the cash and the premium should eventually bounce back to $2,000-2,200 a tonne.

Japan's aluminium premiums for July-September shipments fell nearly $300 from the previous quarter, the sharpest such decline ever, to a six-year low of $100 as swelling Chinese exports piled more pressure on an already swamped market. The premiums hit a record high of $425 per tonne for January-March period.

The next round of quarterly pricing negotiations are set to begin later this month between Japanese buyers and global miners.

"We expect Japan's premiums to stay nearly flat at around $100 through next year, although it may temporarily fall $10 or $20 from the level," Yamagiwa said.

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