Spot market prices for 226, Europe's key grade of secondary aluminum alloy, slipped slightly this week as some diecasters came in ahead of larger consumers negotiating for third-quarter quantities next week.
A German diecaster booked 226 ingot at Eur1,580/mt delivered plus credit for July and August. He said he had found many producers were not willing to go below Eur1,600/mt but that he had received offers from various traders and also from a couple of producers with volumes to sell at below this level.
He said the market for 226 was generally "united at Eur1,600/mt" and that although the range of offers he received was between Eur1,580-1,620/mt, more sellers offered volumes at Eur1,600-1,620/mt.
An East European trader agreed market prices were between Eur1,580-1,600/mt delivered this week but that it was getting harder to find material at below Eur1,600/mt because of rising scrap prices.
Another large automotive producer was due to hold an auction to negotiate Q3 prices and volumes this week, but due to technical issues it was delayed until Monday, market sources said.
Offers for 226 ingot were expected to be in the region of Eur1,600-1,620/mt for delivery to Poland and around Eur1,620/mt delivered Czech Republic, with liquid metal some Eur60-80/mt higher delivered Germany.
A third big diecaster is also scheduled to begin talks over Q3 volumes and prices early next week.
The volumes required by these two large Q3 buyers are very healthy and more than anticipated, market sources said.
Upcoming Q3 talks between producers and buyers are expected to be tough as sellers push to raise the price of ingot to cover higher aluminum scrap prices, while consumers cite good availability of metal and a low price of primary aluminum on the London Metal Exchange as an argument for unchanged prices.
Spot market prices of 226 ingot have struggled to move higher through the first five months of 2016 and have languished at Eur1,580-1,620/mt delivered over the past four weeks, while scrap prices have moved up by around Eur50/mt or even more depending on delivery point and grade.
"I think there's less downside potential right now as the LME [primary aluminum contract] is at a low level and demand is looking extremely good again this year," said the German diecaster.
SCRAP ISSUE
Scrap has continued to be troublesome, said a German trader. "There's good availability but no one wants to sell right now as dealers know good levels of demand are coming," he said. He said Old Cast aluminum scrap was on offer at around Eur1,250/mt delivered.
A Polish seller said the scrap situation was "uncomfortable" as Old Cast scrap prices had risen by Eur100-150/mt since January/February when Q2 ingot contracts were being agreed. By contrast, ingot prices have only risen by some Eur30-50/mt over the past four months.
She said she suspected larger producers would be unwilling to sell 226 below Eur1,600/mt and the majority would be looking for prices at around Eur1,630-1,650/mt as a minimum.
An Italian producer said it would be interesting to see if ingot producers would be more cautious about offering at low prices given scrap prices jumped by some Eur30-50/mt after the low Q2 deals were struck.
"It's harder to get the [scrap] volumes...prices are high. Merchants are cautious and are waiting for the big demand to come," he said, adding that he saw turnings at Eur1,050-1,060/mt delivered this week.
A German alloy producer agreed margins were being squeezed by low ingot sales prices and rising scrap costs. He said ingot sales this week were between Eur1,600-1,630/mt delivered, with nothing below this level.
"Sellers will have to be careful when negotiating Q3 prices...demand is good, I just can't understand these low prices," he said.
Secondary aluminum producers are unable to hedge their ingot prices by purchasing scrap far forward.
"It's not possible to buy further forward than about four to six weeks," said the Polish alloy producer, adding that turnings were priced at Eur1,020/mt but that some Italian buyers were said to be paying up to Eur1,050/mt delivered this week.
Old Cast was priced at around Eur1,200-1,250/mt delivered Poland, she added.
Aluminum alloy is produced using scrap metal, and dealers watch the high-grade primary aluminum contract on the LME for direction. An increase in primary is likely to cause scrap dealers to raise scrap prices.
The LME's official cash settlement price for primary aluminum was $1,559/mt Friday, up $30/mt from the week-ago level of $1,529/mt, but showing a $76/mt decline from four-weeks ago when the price was $1,635/mt on April 22.
The weekly assessment by Platts of standard 226 grade fell Eur20/mt to Eur1,580-1,630/mt delivered Germany, including 30 days' credit, from Eur1,600-1,650/mt delivered Germany a week earlier.
Spot indications for 231 grade declined by Eur10/mt to Eur1,620-1,670/mt delivered Germany, plus credit, from Eur1,630-1,680/mt a week ago.
