At first glance, the New Year's party of the aluminum alloy industry, held in Tokyo for the first time in three years, was a lively and enjoyable gathering after a long absence, but when we asked the participants individually about market trends this year, we were concerned that not many upbeat stories came out. Some of the participants were very cheerful when they talked about golf, but their expressions turned gloomy when they talked about the alloy market.

 

The "recovery production? There is no more. Now is normal. We have to get used to this (Aluminum alloy traders).

 

Since the year before last, there have been several declarations that automakers are going into recovery production. I thought the above statement, which seemed to indicate that there was no longer even a possibility of such an event, was a bit excessive, but several others gave similar answers. I wondered if the above statement was a bit excessive, as if to say that there was no longer even a chance of that happening.

 

A representative of a major aluminum scrap company told us, "The other day, when I ordered a new Prius (of Toyota), I was told immediately that I would have to wait one and a half to two years. Since he indirectly supplies raw materials to the automaker, he asked the dealer how long the delay would last.

He was told, "It will continue for the next three to four years. That is really a long time. The current shortage is not only a shortage of semiconductors, but also a shortage of other parts as well. In particular, delivery of hybrid and EV vehicles tends to be delayed due to the large number of parts made from cutting-edge materials. So, when it comes to the Corolla, the waiting time is only 4 months (but even the Corolla is 4 months!).

The first ones to be hurt here are the car dealers. They can only make money (sales) by delivering cars to their customers. However, with the current delays, there is no prospect for sales. This is why we hear that car dealers are facing a severe shortage of funds. I hear that Toyota, for example, guarantees a 50% advance payment when an order is placed to protect its dealers.

 

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Shrinking demand for aluminum alloys?

 

If automobile production continues to be sluggish not only this year but also for the next three to four years without enthusiastic backing like last year, the demand for aluminum alloys will also continue to be sluggish, unless new applications are developed. In the meantime, the lineup of non-engine vehicles, such as EVs and even FCVs, will expand in Japan, and demand for aluminum engine blocks may structurally shrink.

 

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Another nightmare of high raw material prices and low product prices?

 

Since late October last year, the yen has changed phases and has begun to head away from the ultra weak yen path to a more sensible exchange rate level (yen appreciation).

The strong yen drives down the price of imported lumps. Trading companies that relied on recovering production continuously decided on import contracts. However, domestic demand for automobiles did not increase, imported ADC12 inventory was again piled up high at ports (especially in Nagoya).

 

 

Change in Exchange rate (yen-dollar TTS) and Chinese ADC12 market price ($/ton C&Fjapan) 

 

 

As of late January, the ADC12 price at the daily tender of major die-cast manufacturer Aisin Corp. was ¥325/kg.

In the first half of March, trading sources offered an imported lump of 320 yen for the contract price and said they have decided to sign the contract. On the other hand, secondary alloy makers offered 335 yen. As a result, we heard that alloy makers' contracts for the first half of March remain at a fairly low level. It is somewhat surprising that the unit price of 350 yen and 340 yen has already disappeared, but in the end, (1) there is no recovery in production and (2) there is an overstock of imported parts, so trading firms must quickly dispose of their inventories to receive the next contract. This is why, trading firms are focusing on selling their inventory even at 300-yen commission per ton. The low 300 yen per ton is also a surprise to us.

As for raw scrap, as mentioned earlier, demand for aluminum scrap has been falling due to the chain of production cuts, but in fact, the scrap market is still tight. Even if domestic buyers do not buy scrap, exports to overseas markets are booming. Now more than 30,000 tons of aluminum scrap is exported per month on average, and this figure is likely to increase further.

 

→ November 2022 Analysis of Aluminum Scrap Export Statistics. Slight declines in both volume and value for two consecutive months

 

While aluminum UBCs to South Korea and Thailand are becoming more common, the number of destinations for aluminum scrap continues to expand, beginning with China, followed by Malaysia, Thailand, and Vietnam, and then India. In Vietnam, a local billet manufacturer wants Japanese B-sashes to start a sash-to-sash business. The most recent FOB price for billets bound for Vietnam was 250-260 yen per kg, higher than that of domestic alloy manufacturers. In fact, alloy makers have declared a 20-30 yen per kilo reduction in aluminum scrap in the first half of January in response to such export expansion, but in reality, they have not been able to reduce the price to this extent. At best, the price has been reduced by 10-15 yen. If the price is lowered properly, there is a hint of anxiety that no raw material scrap will come in at all.

 

Aluminum Alloy & Scrap Market Update 2023#2: Top-grade aluminum alloys are back up 10 yen and flat, while demand for alloys continues to be sluggish.

In other words, we may be back on the same path we have been on for some time, the once familiar scene of low product prices and high raw material prices.

The aluminum alloy industry is good once every four years, or once every 10 years, a bubble comes, and that was two years ago. Now it is just back to normal," I remember a veteran with 50 years of experience in the industry said at a recent New Year's party.

 

 

(iruniverse marcin)

 

 

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