NEW YORK "Historically
low spreads" and tight scrap flows weighed on Aleris
International Inc.s second-quarter earnings as scrap
dealers continued to hold inventory while waiting for higher
prices, the company said during an earnings call Thursday.
Aleris chairman and chief
executive officer Steven J. Demetriou said during the call that
the performance of the companys global recycling sector
had a negative impact on its balance sheet, with the Recycling
and Specification Alloys North America segment recording a
38.4-percent year-on-year drop in segment income to $14.6
million during the quarter from $23.7 million a year
Segment income has been affected
by lower spreads, caused by "a lower selling price to customers
while scrap costs remain high," he said, adding that those
higher costs are a result of tight scrap flows caused by a
downturn in London Metal Exchange prices.
"We believe scrap dealers are
refusing to part with inventory with such depressed LME
prices," Demetriou said.
The situation will improve with
a recovery in LME aluminum prices, he said, but added that
Aleris "expects spreads to be tight in the third quarter" with
LME prices still in a lulla trend that is also expected
to negatively impact the companys third-quarter net
Demetrious remarks reflect
the sentiment of scrap buyers contacted by AMM, who
have said that buying activity has been sluggish, with sellers
reportedly preferring to hold on to inventory until LME prices
amm.com, July 24).
The aluminum cash price closed
the LMEs official session at $1,821 per tonne (82.6 cents
per pound) Thursday. The price has steadily declined since
closing at $2,308 per tonne ($1.05 per pound) on Feb. 28.
Demetriou also confirmed that
the company has implemented a 5-cent-per-pound surcharge on
rolled products in an attempt to offset tightening spreads on
scrap, following similar moves by Jupiter Aluminum Corp. and JW
Aluminum Co. (
amm.com, July 2).
"Three additional scrap
processing projects will come online in the third quarter," he
A company spokeswoman provided
no further details.