CHICAGO Aluminum alloy prices continue to slide despite stable physical demand, moving in step with a large drop in primary metal on the London Metal Exchange, market sources said.
AMMs price for 355.2 alloy has been cut to $1.28 per pound from $1.31 per pound previously, and 356.2 alloy has been lowered to $1.23 per pound from $1.26 per pound.
The price decline is a million percent because of the LME, as prices for the alloys move with tags on the exchange, one producer source said.
However, some scrap grades, such as nonferrous auto shred (twitch), havent followed the LME lower, he said, citing continued strong demand from China.
The cash aluminum contract ended the LMEs official session at $1,943 per tonne March 5, up 1.5 percent from $1,914.50 March 1 but down 3 percent from the Feb. 25 level of $2,004 per tonne.
The producer source suggested that LME prices could reverse course closer to the third Wednesday of the month, which is the prompt date for the March contract. However, if that were to happen it would be the result of financial players rather than any changes in business activity, he said.
A second producer agreed that prices had fallen due to what he described as a collapse in LME prices.
"Were still busy," the second producer source said, ticking off areas of solid demand in the energy and automotive sectors. "But there is no margin."
The second producer brushed aside various theories put forward by other market players about financial institutions being behind the dramatic downturn in the LME, instead pointing to a host of other factors that could be putting pressures on aluminum prices. The outcome of recent elections in Italy, which has called into question the future of austerity measures in the country, has strengthened the U.S. dollar and, therefore, weakened all commodities priced in dollars, including aluminum, he noted.
"Its automatic, like a teeter-totter," he said. "If one goes up, the other has to come down."
Also weighing on aluminum prices is uncertainty about the pace of Chinas growth and the reliability of its economic statistics, the second producer said.
Meanwhile, demand and business activity have been "OK" in the United States, but the sequestration could blunt long-term demand for metals from key end-users such as the U.S. military, he added.