Domestic primary aluminum market price sharply dropped by selling off inventories

2015/11/06

Current domestic market prices for primary aluminum have been falling sharply. Trading companies are selling off their primary aluminum inventories in hand. They seem to want to avoid increasing inventory write-downs.

With the falling LME aluminum prices since the middle of October, domestic primary aluminum prices have also continued to drop. Market prices for primary aluminum dropped below JPY190/kilo to the mid-JPY180/kilo level, which is a low price extremely close to LME aluminum flat. That means that cheaper primary aluminum than aluminum alloy ADC12 or high grade scraps has started to flow into the market. At the moment, it is said that the primary aluminum market prices are around JPY188/kilo at present, but large lot orders are getting further discount.

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A source said, “Considering the primary aluminum prices dropped to JPY130/kilo after the financial crisis in 2008, this would be unsurprising.”

Due to the inventory write-down caused by falling resource price, falling into the read or declining profit is seen in many trading companies’ financial statements. For example, a trading company fully recorded the investment on acquisition of an overseas scrap dealer as an extraordinary loss. Thus, they seem to be selling off their inventories of primary aluminum and Russian AK5M2 in hand to avoid a further extraordinary loss.

The expanding sales of cheap primary aluminum have put downward pressures on the prices of high grade aluminum scrap such as 2S, 63, 52, wheel, UBC and printing sheet, whose prices move with primary aluminum prices. The high grade aluminum scrap prices started to drop after a major sash manufacturer lowered the purchasing price of 63 scrap by JPY8/kilo late October. As to the aluminum wheel scraps, the manufacturers’ purchasing price of shredded wheels dropped to JPY180-185/kilo. Wheels are traded as 3 piece at JPY170/kilo delivered to manufacturers at most. They have dropped by more than JPY10/kilo compared to the previous month.

The price drop in high grade aluminum scrap reported yesterday is being accelerated in the market.

Domestic base metal keeps JPY205-210/kilo. This is due to the prices for hot aluminum manufacturers. ADC12 aluminum ingot manufactures can’t purchase at this high price.
However, hot aluminum manufacturers are more likely to lower the purchasing prices as the imported ADC (from Nigeria) prices have recently dropped to $1,650/t.

Most car manufacturers, which are customers of hot aluminum manufactures, have lowered their production.
Toyota is expected to increase production as they are supposed to launch the 4th generation of Prius in December. But, in fact, the company has announced a series of downward revision in the estimated production in Nagoya. Most recently, they dropped the estimated production to 13,100 cars per day.
Honda also continues to cut production by 40% in its Suzuka Plant.

In November, the morning and the evening have cooled down in Japan. Aluminum alloy industry and scrap industry might have a much severer winter than usual years.


(Edited by Sasaki)

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