Japan's scrap aluminum dealers suspend spot sales on slumping LME prices

admin publish 2015/8/19 14:20:10

Japan's spot scrap aluminum trade has slowed, with some dealers suspending spot sales as London Metal Exchange prices continued on a downward spiral, sources said Tuesday. 

LME official three-month aluminum contract prices, used as a reference to set scrap prices in Japan, fell to a multi-year low of $1,558/mt Monday, from $1,605/mt on August 3. 

The weak LME prices had deterred spot trades of primary and secondary aluminum as buyers moved to the sidelines, particularly for supplies from Russia and other parts of Europe that take more than two months to reach Japan. 

In the Japanese scrap market, however, sellers were retreating. 

"LME prices are falling at a fast pace and I cannot keep up with the decline, a central Japan-based scrap dealer said. "I may offer low, but the next day LME prices are lower. So brokers are only supplying term buyers and have suspended spot sales." 

Dealers said they felt the lower LME prices were tracking crude oil prices rather than caused by aluminum supply and demand fundamentals. Aluminum production costs are around $1,600/mt and LME prices should have been supported, they said. 

"There is limited downside for aluminum, but prices continue to be dragged down, a scrap buyer said. "There is nothing we can do about it but watch." 

Scrap suppliers said the oil market may be suffering a supply glut but this was not the case of scrap aluminum, which typically tightens in late August following a week-long shut down of manufacturing plants. 

LME prices have fallen 3% since August 3. But most scrap sellers are not willing to sell 3% lower on a spot basis. 

Deals for 6063A-grade extrusion scrap were heard concluded at Yen 190/kg ($1.52) delivered to Kanto region in early August. Buyers' target prices were Yen 180-185/kg delivered. 

"I cannot find sellers at Yen 185/kg," an extruder in the Kanto region said. "I am still buying at Yen 190/kg now." 

Another scrap dealer said: "LME is down but some scrap types are tight, like engine scrap." Because of limited stocks, he said he was not actively selling in the spot market. 

The tightest scrap was tellic, two secondary aluminum alloy smelter sources said. 

Some scrap sellers have suspended sales to end-users with special requirements. 

"I require 6063A-grade scrap with no door knobs, vinyl wrappings have to be removed ... my supplier said he could not spend extra time sorting and suspended sales," the extruder source said. 

The extruder has decided to substitute scrap with primary ingot. 

"Primary ingot at Yen 210/kg delivered, and scrap at Yen 185/kg same basis, scrap is attractive but I have no choice," he added. 

Buyers and sellers said that while 6063 extrusion scrap and used beverage canstock had room for further price declines due to ample supplies, tellic and engine scrap were tight and the current Yen 160/kg price level is likely to stay supported. Spreads between scrap types are likely to widen, sources added. 

A scrap seller said an uncertain demand outlook was also discouraging him from selling. 

Japanese automakers are expected to cut production of passenger vehicles in September due to a possible slowdown in car sales in China. This would lead to a fall in demand for scrap. Scrap sellers want to have a more accurate demand outlook before making their next moves, the scrap seller said. 

September car production targets are expected to be finalized next week. 

Sources also said that spot trade of primary aluminum ingot was slow, due to low LME prices. 

"People are holding off from buying because [they expect] offers [to fall] to less than Yen 200/kg delivered," a secondary aluminum alloy smelter source said. 

In the primary market, spreads between different grades are narrowing. 

There have been spreads of $10/mt or wider between P1020 ingot (silicon up to 0.1% and iron up to 0.2%) and P0610 (silicon to 0.06% and iron up to 0.1%) in the past, but in recent months the spread has contracted to $5/mt or less, Japanese traders said.

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