Aluminum raw materials market: Tighter supply except some high grade materials
2015/07/06Early this month, a leading sash manufacturer, SM Company had as big an impact on the aluminum raw materials market as the Greek crisis by dropping their purchase price of sash scraps by JPY28/kg. But, it was within the scope of assumption, given the recent transition of primary aluminum prices.
In short, the prices of some of those primary-aluminum-linked high grade scraps will drop. But, a price cut in low grade scraps with low generation seems to be hard to penetrate into the market.
First, domestic primary aluminum NSP has dropped to JPY265/kg at the moment, down by no less JPY53/kg from JPY318/kg early May. To put it briefly, the purchase prices of A sash scrap by sash manufacturers have dropped according to the NSP drop since May.
Y Company and LX Company are also likely to follow the SM Companyfs price cut of JPY28/kg. The purchase prices of A sash (63 grade sash with screw excluded) from sash manufacturers are expected to drop roughly to a JPY190/kg level, which will be at the same level as the purchase prices from secondary aluminum alloy producers. But, some of sash manufacturersf purchase prices will drop even to JPY185/kg.
With the sharp price drop in A sash scrap, screw included sash will not flow to sash manufacturers, so secondary aluminum alloy producers would use it as raw material for their production. The prices of screw included sash are also hard to drop and its supply is rather tight. As the August loading contract price was at JPY170/kg, the purchase prices from secondary aluminum alloy producers still remains at JPY165/kg.
Simply stated, items containing more primary aluminum (i.e. items substitutable with primary aluminum) are cheaper and the prices of alloy items are hard to drop at current aluminum raw materials market. Prices of sash, aluminum can (UBC) and turning (curled) from aluminum expanded materials are easy to drop. And, demand for those scraps which can be substituted with primary aluminum is expected not to pick up over a prolonged time. Current domestic primary aluminum market price is at JPY210-215/kg. Our previous article mentioned to a reverse phenomenon in aluminum raw materials prices.
จ(Related article) Low materials for aluminum alloy market update; UBC at the lower half of JPY140/kg
Domestic ADC12 prices, which are at JPY250-255/kg, are higher than primary aluminum prices and also higher than base metal prices which remain at JPY220/kg. Current market sees such reverse phenomena where child (=ADC12) price is above parent (=primary aluminum) and grandparent (=base metal) price. If the primary aluminum prices drop further below the ADC turning price, market will see a reverse phenomenon again, but the prices are not expected to drop so far. However, we canft deny the possibility of reverse phenomenon as the ADC turning supply is so tight in the Japanese domestic market to be fought over.
The ADC scrap (so-called dismantled aluminum materials) prices remain high at JPY200/kg (secondary aluminum alloy producersf purchase price) and the casting turning prices are at JPY160-170/kg (same as above). Both prices will be hard to drop. The curled turning prices are at around JPY145/kg. The casting turning prices are harder to drop as molten manufacturers also use them as much as base metal. The largest auto producer, Toyota is expected to increase its production to 14,600 cars per day in 3Q compared to the previous quarter. Also, further increase is expected in 4Q.
Such improvement has not been seen in Honda and Nissan, so demand depends on auto producers to which the materials are delivered.
The primary aluminum imported by long-term contract will not stop by the end of the year. Inventories at domestic ports were more than 500,000 tons at the end of May. They are expected to reach to 700,000 tons at the end of the year, which are equivalent to one-third of the primary aluminum annually imported to Japan. As long as there are such large inventories, rolled aluminum producers making sash and can materials will continue to use primary aluminum if they find merit in it depending on the market prices. Some of Japan premiums of primary aluminum for 3Q is said to have been settled at $90, but others are not yet settled. Probably, they will be settled at $90-100.
UBC prices remain on downward trend
Aluminum UBC is concerned as its demand is expected to decline in consequence of primary aluminum and imported can materials. Even if some secondary aluminum alloy producers continue to purchase UBC, overall demand for UBC will drop unless demand for can materials increases. As recyclers specialized in UBC have hinted their intention to limit the purchases during summer, the outlook for UBC demand is concerned.
UBC of August contract for Korean Novelis was at JPY150/kg (containerized), but that of September contract will definitely drop to a JPY140/kg level.
Trends in imported secondary aluminum alloy ingots
The prices of Chinese ADC12 have edged down since last week. The prices of A group including Ye Chiu and Delta are at $1,940-1,960/t CIF Japan and those of B and C groups are at $1,900-1,910/t CIF Japan. The prices of Russian AK5M2 secondary aluminum alloy ingot are at $1,660-1,670/t CIF Japan.
Chinese and Russian secondary aluminum alloy producers have continued to lower their offer prices due to weak JPY and declining demand in Japanese market, but the prices of imported secondary aluminum alloy ingots may stop at this level as its demand is increasing in Japan.
(Edited by Sasaki)