- Premium surges by nearly 80% q-o-q in Q2CY’26
- Middle East conflict lifts freights, raises supply risks
The premium for aluminium shipments to Japan for April-June 2026 (Q2CY’26) was settled at an 11-year-high of $350/t over London Metal Exchange (LME) cash prices, marking a sharp increase from the previous quarter and reflecting heightened global supply risks. The agreement follows Rio Tinto’s mid-March offer of $350/t, up 40% from its earlier proposal of $250/t and nearly 79% higher compared to the current quarter, driven largely by concerns over potential supply disruptions amid the escalating Middle East conflict.
Negotiations saw initial buyer resistance, with several global participants proposing premiums in the $220-250/t range. However, many of these offers were later withdrawn or allowed to lapse due to rising risks associated with shipments passing through the Strait of Hormuz, alongside increasing freight and insurance costs. The final settlement at elevated levels also aligns with stronger prevailing premiums in Europe and the US, which have supported the upward shift in Asian benchmarks.
The surge in premiums coincided with broader market volatility in March, influenced by geopolitical uncertainty surrounding Iran and mixed signals from the US administration. At the same time, LME aluminium prices strengthened, widening the arbitrage over the Shanghai Futures Exchange and potentially encouraging higher Chinese exports. Robust demand from emerging sectors such as artificial intelligence and solar energy has further supported Chinese shipments, which are expected to rise modestly y-o-y.
Additionally, increased demand for physical aluminium in Asia has been reflected in rising withdrawal requests from LME warehouses, particularly in Malaysia, with major trading firms actively securing material. This tightening availability, combined with logistical and geopolitical challenges, has reinforced the bullish premium environment.
As a key importer, Japan’s quarterly premium settlement serves as a benchmark for Asia. The elevated Q2 premium highlights ongoing supply-side uncertainties, increased cost pressures across the supply chain, and the need for both buyers and producers to secure stability amid a volatile global aluminium market.
Meanwhile, the monthly average LME aluminium price increased from $3,153/t in January to $3,363.96/t in March, up around 7% over the period, while inventories declined from 498,670 t to 450,318 t, indicating tightening global supply. This trend was driven by supply disruptions and logistics risks amid Middle East tensions, constrained output due to high energy costs and production caps, particularly in China, and strong demand from sectors such as EVs, renewable energy, and infrastructure, alongside continued warehouse drawdowns supporting higher prices and premiums.
Outlook
Aluminium premiums in Japan are expected to stay elevated until Q3CY’26, following the sharp rise to $350-353/t over LME, driven by global supply risks, Middle East tensions, and higher freight and insurance costs. Despite modest domestic demand, firm LME prices and declining inventories continue to support the bullish trend, with ongoing supply constraints and overseas market strength likely to keep premiums elevated.
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