Oversupply of commodity grade aluminum alloy, 226, has continued to put pressure on prices and squeeze European producer profit margins.
German producer Stockach Aluminum (StockachAlu) was one of the first casualties this week following its decision to close its 25,000 mt/year facility by the end of 2016.
"The decision was made against the background of the enormous oversupply on the market, which no longer allows for production at sufficient margins," the company said in a statement dated Thursday.
StockachAlu plans to focus on its wrought alloy production and the production of casting alloys will be concentrated at the locations of its sister company, Oetinger aluminium, in Weissenhorn and Neu-Ulm, which have a joint capacity of around 190,000 mt/year.
Both Oetinger aluminium and Stockach aluminium were acquired by private equity fund Special Situations Venture Partners (SSVP) III, advised by Orlando Management in December 2013 and May 2016 respectively.
Market players were largely unsurprised by the news of StockachAlu's closure but many suggested that although the closure would not tighten the market physically it would, however, give many a warning shot.
"Many producers will look at this [StockachAlu closure] and resolve not to make the same mistake," said a European trader.
Oversupply of secondary aluminium in Europe has built since the summer, and as a result, European producers have been forced to fight for business and ingot sales prices have come under intense pressure.
Spot market prices for Europe's key grade of aluminium alloy, 226, have fallen by some Eur100/mt (about $107/mt) since mid-June, while aluminium scrap costs, which are the key ingredient, have fallen by much less, estimated in the region of Eur50/mt.
SPOT PRICES WIDE-RANGING
Offers of 226 were relatively wide-ranging at between Eur1,500/mt up to around Eur1,580/mt delivered plus credit this week as a number of producers have raised prices over concern about the prospect of tighter margins if ingot prices do not improve.
"I'm convinced that we will see Eur1,600/mt very soon. The losses we had over the past two months are unsustainable. Slowly producers are trying to make changes," said an Italian supplier, who added that he was offering at between Eur1,540-1,580/mt although German buyers were still able to find offers in the low Eur1,500s/mt.
A German trader said that he too felt the market was beginning to slowly move up and that 226 offers ranged between Eur1,510-1,550/mt delivered.
In contrast, a second Italian producer said that he felt prices were unchanged at between Eur1,490-1,530/mt for 226 and between Eur1,570-1,600/mt for 231 grade.
"Q1 is a long quarter so selling at these low levels will be difficult...the big quantities aren't sold yet and will be negotiated over the next few weeks," he said.
One automaker held an online auction for Q1 supplies at plants in Germany and East Europe this week. Offers were said to be extremely wide-ranging at between Eur1,490-1,560/mt delivered plant. The buyer is expected to negotiate final prices and quantities next week.
"The market needs to be higher...everyone is so afraid of losing business," commented a Polish producer, who added that if within the next two to three weeks the LME stayed strong then she hoped that market prices would slowly recover. "At below Eur1,550/mt everyone is making losses with scrap prices at current levels."
Two other, smaller diecasters were also in the market this week and were heard to have purchased 226 ingot at between Eur1,510-1,520/mt delivered Germany. A smaller Germany buyer was heard to have bought quantities for December-January at Eur1,540/mt delivered.
The Platts weekly assessment of standard 226 grade was unchanged at Eur1,500-1,550/mt delivered Germany, plus credit.
Prices for 231 alloy were also flat at Eur10/mt at Eur1,540-1,600/mt delivered Germany, plus credit.
There are growing concerns over the financial health of Europe's secondary aluminium market as producers fight to keep scrap costs down.
"Scrap traders see the LME rise and want to get higher prices but in the physical market 226 ingot prices are too low to make money," said a German producer.
Scrap merchants are hanging on to stocks as the LME is high so they don't want to lower prices.
"The more people who have sold in the area of Eur1,500/mt the quicker we will see a price turnaround in the New Year -- and [maybe] bankruptcies too," warned the first Italian supplier.
The latest statistics on car demand showed European passenger car registrations to have stagnated in October to a total 1.105 million units, down very slightly at 0.02% from the previous year, auto manufacturers' association ACEA said Wednesday.
Results were diverse among the major markets, with Italy (up 9.7%), Spain (4.0%) and the United Kingdom (1.4%) posting growth, while Germany (minus 5.6%) and France (minus 4.0%) performed less well than one year ago, the ACEA said.
In the period January-October 2016, car registrations in the EU totaled 12.349 million units, an increase of 7.2% against year ago levels. All five major markets positively contributed to overall growth during this period. Italy (16.7%) and Spain (10.8%) showed the highest gains, followed with more modest rates by Germany (4.9%), France (4.7%) and the UK (2.5%), according to the ACEA.
