NEW YORK Rising aluminum scrap costs have forced some secondary aluminum producers to re-evaluate their product mixes and buying strategies, according to market participants.
One alloy maker told AMM earlier this week that it will stop producing A380.1 alloy until margins improve (amm.com, March 19), while a specialty secondary aluminum producer told suppliers on March 21 that it will step away from scrap markets until the price direction for raw material and finished products becomes clearer, AMM understands. Both producers, however, said that they are long on scrap inventory and will continue production on existing orders.
"April sales are starting to form, demand is down and (scrap) prices continue to remain high," one specialty aluminum producer said. "We are currently re-evaluating our inventory position, which at this point means suspending purchasing so we can get a better idea of our inventory numbers. Overall, we think our inventory position is in good shape, and we are taking a wait-and-see approach."
A disciplined approach to buying scrap has become crucial to remaining competitive, even if that requires scaling down purchasing activity, several sources told AMM. "We havent been selling below the market, and what we have sold, we have made money on," the producer said. "If favorable conditions return, we will resume buying scrap."
"I am sure that they have the inventory and they are just making an adjustment," a second producer said of the situation. "If there were a reason for them to buy scrap, they would. Every smelter is looking to reduce volume to try and regain margin. Were all looking to return to profitability, and if that means turning off the faucet for a while, so be it."
"Business conditions all over the world are shaky," the first producer noted. "There are so many things that could collapse like a house of cards. The main thing is that we are very long on inventory, and we will wait for better conditions to return. At this point, not buying scrap is an operational move that we feel will benefit us in the future."