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Nonferrous Metals Outlook

Q4 European aluminum alloy buying starts, volumes strong

By Suzie Windsor in London

August 30, 2016 - Europe's aluminum alloy market has begun to wake from its summer slumber as many diecasters started to enter the market to negotiate fourth-quarter tonnage and prices in the week ended August 26.

"It's very busy ... about 100,000 mt of aluminum alloy has been requested for September and Q4," said a German trader. A German producer agreed secondary aluminum demand for the next quarter from German companies would be in the region of 100,000 mt.

So far, the volumes requested from diecasters and car manufacturers look strong, with auto parts maker Nemak in the market during the week ended August 26 for about 55,000 mt, sources said.

Volkswagen will close separate purchase auctions for both ingot and liquid in the week ending September 2 and sources estimate it will be looking to buy a total of around 27,000-30,000 mt of aluminum alloy for Q4 delivery.

Analysis continues below...

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"The Volkswagen tender next week [w/e September 2] will give us a good idea of where market prices are, as they will buy a lot of 226 grade, " said a Polish producer, who said there was no possibility of prices below €1,600/mt given the current scrap costs.

Producers also face a higher cost for minor metals such as silicon, magnesium and manganese, which have risen by around €20/mt since the last quarter, she added.

The biggest problem the European secondary aluminum market faces during the final quarter of the year is oversupply. Many European smelters ramped up production levels early in the second quarter of 2015 when demand levels began to climb sharply and prices jumped above €2,000/mt delivered.

It has been a very different story in 2016. There has been an excess of supply putting significant pressure on prices. After a weak start to the year, with prices hitting a low of €1,530/mt, physical ingot values have inched up to around €1,590/mt delivered.

In Q3 alone, European producers have seen scrap prices rise by nearly €50-60/mt, but ingot prices have remained steady in a range between Eur1,590/mt and Eur1,640/mt delivered and this has begun to squeeze margins.

"Turnings are very expensive, even in the UK ... for clean turnings you need to pay anywhere between [€1,180/mt and €1,250/mt] delivered," said the trader. He indicated that prices will have to move above €1,590/mt as sales below this level were increasingly unprofitable.

A German diecaster who was also in the market during the week ended August 26 for around 3,000 mt of aluminum alloy said initial offers were in a very wide range up to €1,670/mt delivered. "We're aiming to get below €1,600/mt delivered for 226 and we're hoping for somewhere between €1,570- and €1,590/mt, but the smelters are pushing for €1,600/mt," he said.

Many suppliers are offering fixed prices for Q4 or at least October/November deliveries, as they are concerned that formula prices may not reflect what they will have to pay for aluminum scrap going forward, sources said.

Meanwhile, Alumetal's new Hungarian secondary aluminum plant in Komaron will have its official opening ceremony on September 9, CEO Szymon Adamczyk told S&P Global Platts August 26.

The first line of production at the 60,000 mt/year plant is expected to ramp up in September ahead of its scheduled startup in Q4. Platts weekly assessment of standard 226-grade remained unchanged week on week at €1,590-€1,640/mt, delivered Germany, plus 30 days' credit terms.

Spot indications for 231-grade were also steady at €1,620-€1,670/mt, delivered Germany, plus credit. Opel cuts working hours Activity has been steady even during the summer months, boosted by strong demand from Europe's car industry. There are however concerns that Britain's exit from the European Union will dampen demand.

General Motors division Opel said it will cut working hours at two of its German plants because of lower demand for its Corsa and Insignia models in the wake of Britain's vote to leave the European Union, a company spokesman told Platts August 24. The UK is the biggest market for both vehicles.

"We can confirm that there will be short-time work in the plants in Russelsheim and Eisenach during the course of this year," Opel said in a statement, adding it could not confirm the exact number of days affected as this would depend on Insignia and Corsa sales volumes in the UK.

"The Brexit situation is an issue for everybody who does business in and with the UK at the moment and we already announced last month that there will be an impact on our European financial performance if the value of the pound remains at its current level for the rest of the year," Opel said.

Volkswagen, however, called off a short-time work plan at five of its German plants after reaching an agreement with two component suppliers, the company said August 26.

"Following the agreement reached with two suppliers, Volkswagen can significantly reduce the effects of interruptions in production and for the most part compensate for downtimes by means of internal flexibilization measures," the company said in a statement.

Sources say they expect that Volkswagen's production levels to be back to normal in the week ending September 2.

Next article: Australian, Chinese alumina markets pause for direction

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