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Debate is flaring in Japan’s aluminum industry ahead of the fourth quarter contract premium negotiations about the future of term pricing, popularly dubbed as MJP or main Japanese port.

For over a decade, Japan has been sourcing 1.5 million mt/year primary ingot imports on annual contracts. Volumes were fixed for one year, and prices were London Metal Exchange cash plus the premiums, CIF MJP basis, and the premiums were negotiated quarterly.

Four producers and 15 to 20 Japanese buyers have been in the quarterly talks.

Around 10 other producers and international trading houses have term contracts with Japanese buyers. They generally don’t negotiate the premiums, but follow the quarterly settlements reached by the four producers.

MJP has evolved along with market changes such as geographical shifts in the supply chain, LME reforms and the growing impact of China.

The 2015 premiums crash, from $425/mt plus LME cash CIF Japan to $88.50/mt, accelerated the MJP evolution.

A supply contract just for one quarter was signed between a producer and a Japanese trader in Q3 2015. This move was unnoticed because the standalone quarterly premium and the quarterly premium in annual contracts were the same.

Japanese aluminum premiums 2016

Source: Platts

When several standalone quarterly contracts were signed for Q3 2016, $10/mt lower than those integrated into annual contracts, debate arose on which contract was representative of the market.

The widening gap between the quarterly and the spot premiums has also sparked discussions.

On Aug. 9, the Platts CIF Japan spot premiums stood at $76-$77/mt plus LME cash CIF Japan, 16% below the Q3 premiums of $90-$93/mt.

More Japanese market participants are talking about reducing contract purchases and increasing spot, seeing premium volatility to be a bigger risk than supply disruptions.

Buyers also have more supply sources such as the new smelters in ...