Offers for Russian AK5M2 aluminum feedstock, used for molten aluminum production in Japan, have fallen 10% in the past month, as demand slowed in Europe, Russia's main export market, Japanese traders said on Tuesday. The AK5M2 supplies have increased as suppliers shifted their production slate from DIN226 secondary aluminum alloy ingot amid a slowdown in vehicle manufacturing.
European demand for DIN226, used for automotive components, fell due to the roll out of Worldwide Harmonized Light Vehicle Test Procedure (WLTP) since September 1, 2018 for new vehicle registrations, that slowed vehicle production notably in Germany, one Japanese trader said.
The WLTP replaces the the New European Driving Cycle test, which was designed in the 1980s. Vehicle production slowed in some parts of Europe as automakers adjusted to the new system.
"Our Russian suppliers, because there is no buyer for DIN226 in Europe, have shifted to AK5M2 production, with plans to export to Japan," one Japanese trader said.
The Platts weekly DIN226 alloy prices have fallen 8% in the past month to Eur 1,520-$1,550 ($1,788-$1,823)/mt delivered Germany on September 21, from Eur 1,640-1,690/mt on August 17.
AK5M2 with 1% zinc and 0.5-0.85% magnesium was heard offered to Japanese traders and consumers at $1,630-$1,640/mt CIF Japan on Tuesday for October loading from St. Petersburg.
Offers have fallen by over 10% or $200/mt in a month, pointed out one Japanese trader. Offers a month ago were over $1,800/mt CIF Japan, he said.
The lower offers in Japan are however not attracting buyers as the steep price fall across secondary aluminum alloys globally -- European DIN226, Asian ADC12, US A380, and scrap feedstock -- have pushed market participants to the sidelines.
The change in the European market is not the sole cause of the global price fall. Sources attributed some of the downward pressure to the US-China trade war. Buyers have become more cautious, sources added.
Japanese prices of ADC12 alloy, which uses some AK5M2, are at this year's low of $1,760/mt CIF Japan, and down 6% from $1,850-$1,880/mt CIF a a month ago.
The prices may go lower as Spanish and Italian producers focus on the Asian markets to cover for slow European demand, sources added.
The Platts US A380 prices have also been under negative pressure, having fallen 6% in the past month. The assessment stood at 92-94 cents/lb ($2,024-$2,068/mt) delivered Midwest.
Japanese ADC12 and US A380 prices may have more room to fall, depending on how low the European prices go, one Japanese trader said.
In addition to the bearish sentiment in the alloy product market, timing makes it difficult for Russian sellers, the first Japanese trader said.
Japanese secondary aluminum alloy smelters typically come into the market for January-March supplies in November, said the trader.
One Japanese smelter also said there is shift to use more local scrap supplies than imported feedstock.
"Russian AK5M2 is an option. Our main source is local feedstock and if we run short of local supplies, we will consider imports," said the consumer.
Russian AK5M2 prices typically start to rise in October as snowfall in the region reduces scrap availability.
This year, however, if European DIN226 demand remains weak in the fourth quarter, the price gain in AK5M2 may be limited, sources said.
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