Tokyo (Platts)--26Nov2012/430 am EST/930 GMT

Negotiations for the premiums for primary aluminum ingot imported into Japan in the first quarter of 2013 are starting slowly as Japanese buyers wait for firm offers from overseas suppliers, sources said Monday.

Two overseas suppliers were in Japan the week of November 19-23 to discuss the premiums for either Q1 2013 or for the whole year.

A deal was reported done at less than $220/mt plus LME cash CIF main port basis, for shipment in the second quarter of 2013. This deal, however, was not accounted for in the Platts assessments which are for shipments in January-March 2013 or before.

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Suppliers did not make firm offers for Q1 2013 last week but discussed market trends with customers, Japanese sources said.

Japanese buyers are waiting for offers from two Australian producers this week, they said.

The premiums in the past two quarters jumped by 20-70% on the back of tightening supply, caused by producer output cutbacks and some market participants delivering available supply to LME warehouses rather than to end-users, sources said.

One Japanese end-user said he was eyeing a sharp reduction in Q1 premiums amid slowing demand.

"The fourth quarter premiums were up $50/mt from the third quarter due to London Metal Exchange warrant premiums [premiums for aluminum stored at LME warehouses] rising. It had nothing to do with demand. Premiums should likewise fall sharply, as demand is slowing," he said.

Three Japanese traders, however, said unless there is a change in the LME rules for withdrawing aluminum from LME warehouses, LME warehouse-based financial schemes are expected to continue throughout 2013.

"I personally think the Japanese import premiums in 2013 will hold above $200/mt," said one trader.

The low interest rate of below 1% and a wide contango spread of over $30/mt between cash-three months LME aluminum contracts continue to attract investors, Japanese traders added.

Meanwhile, the spot premiums for primary aluminum ingot stayed at $220-230/mt plus LME cash CIF, unchanged since October 16, according to Platts assessments.

One overseas seller in October had indicated possible spot sales at $220-230/mt but has not been able to attract buyers in Japan. A second overseas seller source said earlier this month his spot premium idea was $220-230/mt CIF Japan as he has heard from third parties a deal closing at this level.

--Mayumi Watanabe, mayumi_watanabe@platts.com --Edited by Martin O'Rourke, martin_orourke@platts.com

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