Secondary aluminum: No longer a simple supply-demand game

Dec 31, 2012 | 07:00 PM | Daniel Fitzgerald

Tags  secondary aluminum, 2013 outlook, aluminum alloy, LME, London Metal Exchange, aluminum scrap, scrap prices, Daniel Fitzgerald

Looking back at 2012, the year might be remembered as a period when conventional wisdom took a beating and the U.S. secondary aluminum industry largely lost--or, some would argue, relinquished--control of its own pricing.

While alloy demand reportedly was steady throughout the year, macroeconomic factors--particularly the ongoing debt crisis in Europe and its accompanying effect on London Metal Exchange pricing--seemed to weigh more heavily on free-market alloy and scrap prices.

Needless to say, the experience has reminded even the most seasoned of industry veterans that the metals business is no longer a simple game of supply and demand. This past year “violated every common law of economics. We had a million more cars produced, but margins went down,” a source at one alloy producer said.

“The margins have been a little disappointing based on the volume of business that everyone is doing,” a second producer source said.

Alloy producers expressed unanimous frustration at the “solid demand/low margins” trend seen throughout 2012, and have been almost as united in their identification of the culprit: the LME’s North American special aluminum alloy contract (Nasaac).

“Nasaac is the No. 1 reason for depressed numbers, and the fact that the industry responded late to it,” the first producer source said. He decried the tendency of many in the industry to regard the Nasaac price as an appropriate barometer or basis for A380.1 prices, a trend that became a problem when Nasaac tags started sliding at the end of March.....

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