Japanese and Chinese secondary aluminum market sources warned that low demand and increases in supplies, resulting in poor smelter margins, may force some unprofitable plants to close and cause industry-wide consolidation.
This week, Japanese traders said they have been offered $1,620/mt CIF Japan ($1,600/mt FOB China) for February shipments from China, which was the lowest since the levels heard in January 2015 at $1,590-$1,620/mt FOB. The lowest ADC12 assessment on S&P Global Platts record is $1,300-$1,400/mt FOB China over December 2008-January 2009.
One Chinese producer said his cost was $1,600/mt and some companies may suspend or cut output if prices could not be supported at $1,600/mt FOB.
A second Japanese trader agreed. "Smelters will stop producing at prices below $1,600/mt," he said.
On Tuesday, some deals were reported closing at $1,620/mt CIF Japan thanks to the strong yen that fueled buying appetite. But the Chinese producer said he was still cautious as it was the year-end and companies typically suspend business activities ahead of the holiday season.
The producer and trade sources also said demand outlook for 2019 was generally bleak and consumers were buying less volumes.
Aluminum smelters face low demand on the back of falling automotive sales in China and other major economies. There is no major change in the supplies of secondary aluminum alloy ingot in Asia with no major plant expansions this year, but supplies of US and European-origin scrap feedstock have increased. Buyers of alloy products have pushed for lower alloy prices on the back of softening feedstock prices, sources said.
Scrap supplies have increased as China, that imported 2.17 million mt of scrap in 2017, has turned to domestic supplies.
China's scrap aluminum imports declined by 27.7% year-on-year to 1.28 million mt over the January-October period, under the Chinese government's Green Fence initiative to cut down import of solid industrial waste.
A Japanese trader said he was approached by a secondary aluminum market participant overseas this week for a possible sale of the company's operation outside of Japan. Such offers to sell business units are a few currently but would increase if secondary aluminum alloy prices plunge below cost levels, market sources said.
