NEW YORK Secondary aluminum alloy producers are cautiously optimistic about the possibility of increased automotive demand to replace cars destroyed by Hurricane Sandy, while scrap traders say it will take a while for any impact on shredded flows and pricing.
One alloy producer contacted by AMM said he expected automotive companies to boost their aluminum consumption in an effort to avoid "going short on inventory" as production increases.
"I think its a big deal for the secondary aluminum business. If you sell more cars, you have to produce more, and theyll sell more in the next 60 days. ... We should have an increase in production, which will increase the price of aluminum sometime in December," he said.
"I dont know that the turnover would be that fast," a second alloy producer said, noting "a couple of automotive contracts." "Maybe its something well see in the first quarter of 2013."
However, other alloy producers were less bullish, saying that they have yet to receive any firm indications from the automotive sector on whether theyll see an increase in production induced by Sandy.
"I havent seen the car guys asking us for extra metal. Theyll make that call about a week in advance, and well do the same," a third producer said.
A fourth producer noted that while his company has experienced atypically strong demand from its automotive customers for December, he doesnt believe it can be directly attributed to Sandy.
"All the business we have selling to auto companies in December is as full a month as any other month, and thats unusual, because they all want their metal in by the 21st (of December)," he said, adding that he believes it will take another three to six months before a car replacement trend kicks in, if at all.
"Nobody is going to buy new cars until everything is fixed," he said. "Even if you did have it insured, when is the check going to come?"
Meanwhile, aluminum scrap traders said that twitch prices could begin to decline with an influx of junked cars on the East Coast, though they were divided as to when this effect might come about.
"Theyre going to hit the shredders rather fast, so we might see twitch prices go down," one scrap buyer said.
"By the time you put it through and turn it around, it will take 60 to 90 days," one broker said. "With shreds, the tightness weve been experiencing could ease, and maybe the smelters will be able to make some margin back."
Traders were also unsure as to whether the surplus of material would make its way to domestic alloy producers.
"A lot of the East Coast shred may go into export. ... It will depend if shredders choose to sit on the car or shred it right away. If they do shred an extra 250,000 cars all at one time, thats a lot of extra zorba," a second scrap buyer said.
"The feedstock for car shredders has been really competitive, so thatll all get snapped up by the shredders up north," a third scrap buyer added.