Japanese secondary aluminum smelters are looking into US twitch scrap supplies as prices of Zorba, the twitch raw material, plunged on the back of falling demand in China, Japanese traders said Wednesday.
Chinese demand for US Zorba scrap, also known as mixed metal, fell following the imposition of a 25% import tariff last April.
At first, US Zorba suppliers sought new export destinations such as India and Indonesia. Some invested in new equipment to convert Zorba into twitch, a type of scrap with higher metal content.
Zorba is preferred in countries with low labor costs, as secondary aluminum smelters need to sort iron, plastic and some metal out of Zorba feedstock, before using it for aluminum alloy production.
"Demand from India and Indonesia cannot cover that of China, so some US suppliers are converting Zorba into twitch," a Japanese trader said.
Twitch has higher aluminum content with maximum 1% iron, 1% zinc and 1% magnesium.
In the US, the cost of upgrading Zorba into twitch is 9 cents/lb or $198/mt, the Japanese trader said.
Twitch is preferred in Japan and South Korea, Japanese traders said.
"Some Japanese companies with operations in Indonesia were buying US Zorba. Zorba was converted into twitch in Indonesia, and some was shipped to Japan," another Japanese trader said.
This week, US twitch was trading at roughly $1,400/mt CIF Japan, or Yen 165/kg ex-warehouse, inclusive of custom clearance and other handling costs.
"US twitch has a clear economical advantage because Japanese local price of twitch-equivalent feedstock is Yen 180/kg," he said.
The first trader said that Japan currently imported less than 1,000 mt/month of US twitch, but this could rise significantly in 2019 as more American Zorba suppliers start producing twitch.
"All Japanese secondary aluminum smelters making ADC12 would be interested in twitch," the second trader said.
There are around 15 aluminum alloy smelters in Japan with an output of around 30,000-40,000 mt/month of ingot and molten metal combined.
S&P Global Platts does not assess Zorba prices.
The price of US high-grade auto shred, that is similar in specification to Zorba, was most assessed on Monday at 62-64 cents/lb delivered Midwest, down from 70-72 cents/lb on April 1, when China imposed the tariff on US aluminum scrap.
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