The US aluminum industry is keeping a close eye on automotive sales forecasts and competition among smelters with the approach of summer — a typical time for maintenance shutdowns. Pricing specialists Sarah Baltic Hilliard and Alex Ifkovits delve into secondary aluminum trends and the current landscape for the US automotive market, as well as price assessments for the Platts A380 and how scrap flows to China may be affecting the market.
Keep watch for more details about the upcoming cross-commodity forum on Tokyo, Japan, which will touch on China's aluminum alloys and auto market developments, and more about Platts metals events on our Conferences and Events page.
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US secondary aluminum market expects greater slowdown in summer 2017
SARAH: Welcome to the latest Commodities Spotlight podcast from S&P Global Platts. I'm Sarah Baltic Hilliard, a pricing specialist focusing on aluminum products in the Americas, and today we will be discussing recent secondary aluminum trends in the US and the current landscape for the US automotive market.
I'm joined today by Alex Ifkovits in Houston, a pricing specialist covering secondary aluminum and scrap markets.
Alex, wondering if you can give a bit of background as to what has been happening lately in the market and any current trends you are seeing.
ALEX: Hi Sarah, thanks for having me. To close the month, the Platts A380 assessment finished with its third straight rally on May 30th. However, pricing largely trended downward throughout Q2, hitting a low of 89.5 cents/lb on May 18.
SARAH: What’s behind that?
ALEX: The reason for the overall bearish direction is due mainly to competition smelters have faced from NASAAC metal and imports, which in turn has created competition between each other, as they lower prices to achieve business. A few months ago the LME NASAAC price ran up higher than the physical market so smelters were quick to deliver or promise delivery into the warehouse, and so now we are seeing that same metal being resold into the market by some players at lower numbers.
But in the last week we have seen that uptick in prices.
SARAH: I saw where in the last week prices had reversed course and wondered what could be driving it. So do you think it is because smelters aren't having to compete with NASAAC units anymore or do you think it has to do with an uptick in demand?
ALEX: Well, there’s always the possibility that competition with NASAAC has dwindled. But smelters are busier — they have been reporting more sales. Over the course of the recent rally, volumes have been noticeably higher than the first half of the month.
Part of this may be that diecasters want to get ahead before summer shutdowns due to periodic maintenance. The slowing could send the signal that supply may tighten in the next couple of months, leading A380 customers to purchase metal now rather than later.
SARAH: Okay, so maybe some housekeeping type business as opposed to extra demand. You mentioned the typical slowdown that happens in the summertime; have you heard anything about how this summer is shaping up compared to last year?
ALEX: The consensus is that this year’s slowdown will be greater than 2016.
For example, one trader told me that a lot of his diecast customers have really scaled down their workload this year — even suggesting that those who would be working straight through the month would now only be doing one or two weekends. Diecasters have also told me that there is not much overtime happening in their facilities as of late.
SARAH: This makes sense; I saw the most recent automotive sales figures showed weaker-than-expected results for all the major auto makers in April and some speculate this is a signal the market may have peaked after seven straight years of growth.
As we round out May, JD Power analysts are predicting a seasonally adjusted annual rate of 16.9 million vehicles, down from 17.3 million the last May. Do you think these declines are having a trickle-down effect to smelters' volumes or prices?
ALEX: Yeah, Ford, Nissan, General Motors and Toyota all reported sales declines in April, and their declines were greater than forecast. Overall sales in April were down 4.7% from last month and 11.1% year over year; however, annual sales forecasts are still around that 17 million mark — LMC, for example, despite dropping their forecasts, still has it slated at around 17.2 million units — so overall things are still looking healthy.
SARAH: Yeah, that’s a good point Alex.
ALEX: As of now though, A380 pricing and volume remains steady. Smelter officials seem to be aware of the forecasts but haven’t seen it play into their deals or offer levels. Many smelters remain at full capacity, still pumping out those units tied to formula business. To a degree, this has supported current spot levels.
SARAH: Is scrap playing into the equation?
ALEX: Scrap prices are also keeping A380 up. Smelter officials have said they are trying not to succumb to others’ lower offers given the current scrap environment. With scrap supply being tight and more expensive, smelters are finding it hard to protect their margins. Smelter sources have told us that they need an alloy-to-scrap spread of about 28-30 cents to be profitable, but many have faced closer to 22 cents recently.
SARAH: I know from covering the silicon market that those costs have also gone up, which has added to the margin compression. And that is likely to continue for some time. But typically, scrap becomes more readily available in the summer. Are you hearing that yet?
ALEX: Yes, we are starting to hear talk now of better flow into the summer months, which has the potential to lower these scrap costs for smelters.
High-grade auto shred prices, for example, have come down with better availability — we are hearing that scrap import regulations in China may be keeping more shred-type scrap items here in the US.
SARAH: The question is, is China’s consumption less due to these regulations or has the demand picture changed? We’ll keep assessing the situation.
For those interested, Platts will be holding a cross commodity forum in Tokyo, Japan on July 5th, where there will be further discussion on China’s aluminum alloys and auto market developments, as well as insight into how aluminum alloys are faring in Asia. You can find more details about the forum as well as the latest news and analysis at Platts.com. Thanks for listening.