Japan rolling mills seek more primary aluminum, less scrap on low LME

Japanese rolling mills and extruders are buying more primary aluminum ingot instead of scrap due to the fall in London Metal Exchange high-grade aluminum prices, market sources said Thursday.

Sales prices of primary aluminum ingot in Japan were heard at around Yen 200 ($2.04)/kg ex-warehouse for July deliveries, down Yen 10 from two weeks ago, local traders said. Prices reflected the LME high-grade aluminum three-months prices falling below $1,800/mt June 20 and staying below that level since then.

Meanwhile, prices of 6063-grade A scrap aluminum (over 97% aluminum) moved little in the last two weeks, at Yen 180-195/kg ex-yard, said a trader.

In Japan, primary aluminum and scrap prices reflect LME price movements. Primary aluminum prices reflect LME prices immediately, but there is a time lag of two weeks or more until scrap takes on LME price trends as scrap prices are typically negotiated twice a month, sources said.

A Tokyo-based trader said orders for 25-mt lots of primary aluminum ingot started to increase from last week, possibly taking advantage of the narrowing price spread between primary aluminum and scrap.

Though primary aluminum is Yen 5-20/kg more expensive than scrap, "it would probably be cheaper for the rolling mills to melt the Yen 200/kg primary than scrap as scrap yields are lower," explained the scrap trader.

The negotiations for July scrap prices will be starting next week, scrap traders added.

"The switch to primary from scrap is a quiet trend still ahead of the price talks. If scrap sellers do not agree to lower prices for July, buyers will melt more primary ingot," the trader said.

A procurement official at a Japanese rolling mill said his company was not substituting scrap with primary metal but plans to ask for a price cut during the next round of July price negotiations.

"We don't want any disruption in the scrap supply. But we also look at price trends of primary ingot, which is the basis for setting the 6063-scrap prices," he said.

A silicon metal trader said he was closely monitoring the July scrap price negotiations too.

"Secondary aluminum smelters may melt more primary ingot rather than scrap if scrap prices don't fall. Since primary ingots don't contain silicon [as opposed to scrap with 6-10% silicon], they may buy more silicon metal," he said.