Aluminum Alloy Market Update - Imported aluminum ingot price drops make 1Q 2016 price negotiation extremely severe

2015/12/04


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, gItfs really tough. The price will be settled at a level which Japanese alloy manufacturers cannot accepth, 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 ADC12fs 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 gbuyerfs marketh. 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 didnft 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, itfs 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.Sasakij

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