Aluminum Alloy Market Update - Imported aluminum ingot price drops make 1Q 2016 price negotiation extremely severe
As large price cuts had been expected in aluminum alloy ADC12 quarterly price for 1Q 2016, on-going quarterly price negotiation with automotive manufacturers is exposed to severe competition with the imported ingots offered at a bargain price.
The bids for ADC12 have already started to major automotive manufacturers since December 1, 2015. A purchasing staff from a Japanese major aluminum alloy manufacturer said, gItfs really tough. The price will be settled at a level which Japanese alloy manufacturers cannot accepth, as the pricing is based on the imported ingot prices.
The mainstream price of ADC12 for automotive manufacturers dropped to JPY220/kg in the 4Q (Oct-Dec) 2015, which was JPY30/kg lower than the previous quarter (Jul-Sep). But, now, it is said that the price for the 1Q 2016 will inevitably drop below JPY210/kg.
The Chinese ADC12 price, a benchmark for Japanese ADC12 price, is dropping to $1,580/t CIF Japan below a $1,600/t level recorded late November. Recently, market participants were surprised at Nigerian ADC12fs prices dropping to $1,600/t CIF, but Chinese aluminum alloy ingots have dropped further. If we convert $1,580 at 123 yen to a dollar, CIF Japanese ports will be around JPY204/kg, below JPY205/kg.
A source from a Japanese alloy manufacturer said, gThe longer we wait for, the lower price they offer. That may be because Chinese ADC12 has not sold very well in the Chinese market.h The aluminum alloy market has become a typical gbuyerfs marketh. According to the source, the cheap Chinese ADC12 is concerned partly with the cheap imported scrap Zorba which is raw material for ADC12.
US Zorba was shipped to China at $0.52/lb CIF China on 21 November. As China requested $0.46/lb at that time, US Zorba should have dropped below $0.50/lb now. Such a cheap raw material is the source for Chinese aluminum alloy manufacturers.
In China, small-and-medium-sized alloy manufactures have gone bankrupt and closed the business one after another. Thus, sorting scrap market has become diminished. In a vicious circle where US Zorba price has continued to drop, it is said that the low-value-added Zorba tends to be sold after being converted into Twitch by gravity sorting.
Russian ingot prices dropped below $1,500/t
In addition to the Chinese ingot price continued drops, Russian base metal AK5M2 prices have also dropped further. Russian AK5M2 (max Zn 1%) was offered at $1,460-1,470/t on December 1, dropping to the lowest level of this year.
The materials currently contracted are supposed to be delivered to Japan in February or March. But, most Japanese users didnft purchase because they have already secured a substantial volume of the materials which can be consumed till March. Also, a major alloy manufacturer has suspended to purchase the materials for a month. As a result, Russian offer prices have continued to drop. If we convert $1,460/t of Russian ingots at 123 yen to a dollar, CIF Japanese port will be around JPY188/kg. The Japanese base metal prices still remain marginally at a JPY200 level, but it will drop below JPY190/kg. Otherwise, the sales volume of Japanese base metal will decrease while the prices of ADC12 and Russian AK5M2 are dropping below JPY210/kg and JPY190/kg respectively.
Japanese aluminum scraps prices dropped roughly by JPY3-5/kg. The largest alloy manufacturer informed scrap suppliers of it. High grade aluminum scrap dropped by about JPY5/kg.
A purchasing staff from an alloy manufacturer said, gCollected scrap was less than we had expected between October and December.h Scrap generation has continued to be less in Japanese aluminum scrap market. Even if supply and demand balance is tight, itfs impossible to avoid a further drop in scrap prices as ADC12 prices have dropped and demand is expected to be lower than Q4 2015.
iEdited By O.Sasakij