S&P Global Platts Tuesday assessed spot price of Chinese secondary ADC12 aluminum alloy at $1,560-$1,580/mt FOB China, the lowest since June 23, 2009, as oversupply across supply chain -- from scrap to cars -- weighed on the market.
The assessment was down from $1,585-$1,590/mt FOB China a week earlier. Similarly, the domestic Chinese aluminum alloy price was assessed lower at Yuan 13,900-14,000/mt ex-plant ($2,060-$2,074)/mt, down from Yuan 14,400-14,500/mt a week earlier.
Trades were reported at $1,580/mt CIF Japan ($1,560/mt FOB China) for March loading from China. A Japanese trader said $1,600/mt CIF Japan was also tradeable.
Chinese export trade into Japan, the main Asian market, was lackluster, due to the dollar trading at Yen 108- 109, rather than buyers' target of Yen 107, the uncertain outlook for car production in Japan for the second quarter, and the London Metal Exchange primary aluminum price plunging to $1,755.50/mt Monday, market participants said. The LME cash price at $1,755.50/mt was the lowest since January 2017.
Low LME prices usually drive down those of scrap aluminum feedstock with a knock-on effect on ADC12 alloys. "If LME falls to $1,600-$1,700/mt, there may be a shift to primary aluminum from scrap," a Japanese smelter source said.
This kind of substitution most recently occurred in 2015 when the LME traded in a $1,500-$1,700/mt range. Although such a move has not yet been seen so far this year, some Japanese market participants pointed out that some scrap feedstock traded higher than the alloy products. This suggests that in the near term alloy smelters may be hit by negative margins.
On Tuesday, Japanese 6063 clean extrusion scrap, also known as grade A extrusion scrap, was heard trading above Yen 180/kg ($1.66/kg) ex-yard/delivered basis, while ADC12 alloy of Chinese origin, for delivery in April, at Yen 170-180/kg ex-warehouse. Grade A 6063-scrap is often substituted with primary aluminum.
Primary aluminum usually trades higher than secondary alloy, but this week, P1020 primary metal and the secondary ADC12, both in local warehouses and thus able to meet an immediate delivery requirement, traded at Yen 210/kg ex-warehouse. A Japanese trader said some Japanese end-users were paying more than Yen 220/kg for ADC12. Secondary aluminum alloy prices are typically $200-$300/mt lower than primary, according to LME data.
It was not yet clear which segment has further to fall -- the primary or secondary, market participants also said.
According to Platts data, US old cast scrap prices fell 29% over July 2018-January 2019, while Chinese ADC12 alloy prices fell at a slower pace of 17%. Secondary aluminum prices are being weighed down by excess scrap supplies as a result of China restricting scrap imports from the US, Japan, the EU and other countries.
In 2018, passenger car sales in China fell 5.8% year on year to 22.35 million units, the first annual drop in 20 years, data from the China Passenger Car Association showed.
Chinese automakers are revising down their 2019 sales forecasts. Last week, Geely Auto Group said its 2019 sales target was 1.51 million vehicles, almost flat from 2018 sales of 1.50 million. Its 2018 sales, despite the country-wide slowdown in car sales, were up 20% from 2017.
"The current focus for Chinese market is automakers adjusting down their 2019 sales forecasts," a Chinese alloy producer source said. Auto components makers are not buying alloy as demand outlook remains uncertain.
A second Chinese producer and a Chinese trader said the tradeable local spot ADC12 price was Yuan 14,000/mt, payment in cash, down from Yuan 14,500/mt a week earlier. "No one is buying...it's not a matter of price - there's no demand," the first producer said.
