Asahan's woes trim Japan aluminum stocks

Asahan's woes trim Japan aluminum stocks

TOKYO (Reuters): Japanese aluminum buyers are looking forward to expected production cuts at PT Indonesia Asahan Aluminum this year, which should help trim huge domestic inventories, traders say.

"Asahan would be a nice adjustment," said an aluminum trader at Mitsui & Co Ltd. "We expect the trouble at Asahan to lead to a product cut of more than 100,000 tons this year." He was referring to the disruption of power at Asahan's Sumatra plant due to falling water levels.

Seven Japanese trading houses, including Mitsui, five aluminum mills and the Overseas Economic Cooperation Fund (OECF) have an indirect stake of 59 percent in PT Indonesia Asahan Aluminum.

Other traders at Japanese houses and mills also agreed Asahan's output was likely to dwindle to near 50 percent of its capacity of 220,000 tons due to falling water levels in the Toba lake which supplies power to the plant.

An official at Japan's Nippon Asahan said on Wednesday that Asahan was in talks over additional production cuts at the smelter in northern Sumatra with the Indonesian government.

In April, Asahan said it would reduce its output to a maximum of 175,100 tons in the fiscal year that started on April 1, compared with its annual capacity of 220,000 tons.

"We're wondering if Asahan is becoming a bullish factor. But unfortunately domestic demand is even weaker at the moment," said a trader at an aluminum manufacturer.

"Japanese annual demand stands at around 2.45 to 2.5 million tons. At the moment we have stocks to cover demand for about 2.7 months," he said, adding that inventories at four ports alone stood at 463,000 tons at the end of April.

Japan usually imports about 135,000 tons of aluminum ingots from Asahan each year. It bought 31,950 tons of the metal from Indonesia in the first three months of this year.

While Mitsui forecast Japanese aluminum demand would slip 1.7 percent this year to 2.365 million tons from 2.407 million tons last year, other traders were more bearish in light of a sharp downturn in the construction sector.

Analysts have said housing starts were unlikely to recover in the near future after plunging by 17.7 percent to 1.34 million units in the year ended March 31.

Reflecting the steep downturn in housing starts, window frame makers have slashed production by as much as 20 percent so far this year, traders said.

"I wouldn't be surprised if we saw a decline of five percent or more," said a trader at a European house.

"We've seen production cuts of some 20 percent in the housing sector alone. Others, including the car sector, aren't doing well either. I personally am pessimistic."