NEW YORK A decline in the price of the London Metal Exchanges cash North American special aluminum alloy contract (Nasaac) has prompted some domestic alloy producers and die casters to once again re-evaluate the legitimacy of the contract, sources said.
Nasaac plummeted to its lowest level in nearly three and a half years April 15, closing at $1,741 per tonne (79 cents per pound), down 13.7 percent from $2,017 per tonne (91.5 cents per pound) a year ago.
"Some of the big OEMs (original equipment manufacturers) like to use itthey want to use it as a formulabut its not a very functional formula for producers," Alan Dick, president of Los Angeles-based Alpert & Alpert Iron & Metal Inc., said in a speech at the Institute of Scrap Recycling Industries annual convention last week. "Theres a lot of risk involved, and because theres such a disassociation between the prices of raw materials and the price of Nasaac itself, it becomes very risky for producers to sell on any sort of long-term basis."
Others indicated that companies that secured contract business based on published Nasaac prices were consistently losing money. "Those guys are really hurting right now," one alloy producer source told AMM. "There is absolutely no correlation between the contract price and actual materials. At this point, we would never do a contract based on Nasaac; its really not a smart idea."
"The Fords and GMs of the world still require suppliers to have contracts based on Nasaac," a second producer source said. "Any die caster that is making parts for those guys is struggling. Something has to change, or the die casters will go out of business."
Several sources told AMM that domestic automakers have been unwilling to renegotiate Nasaac-based contracts. "People in the industry understand that we are not going to be around if we keep our contract business off of Nasaac," a third producer source said. "The auto manufacturers are not amenable to changing the contract, even if they know we are losing tons of money. Consequently, we will no longer be able to do business with the auto guys."
"Historical formulas relative to Nasaac are going to have to change," Dick told the ISR convention. "Whether Nasaac ultimately goes away, its only going to happen when the industry collectively says, This doesnt work. And then well have a stand-off and see what happens from there."