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Magnesium demand boosts spot prices

Keywords: Tags  magnesium, contract negotiations, spot prices, contract prices, aluminum, UBCs, nonferrous scrap, secondary remelter

CHICAGO — U.S. magnesium spot prices have inched up thanks to strong automotive demand and a tight nonferrous scrap market, which has bolstered secondary aluminum producers’ demand for magnesium.

As some secondary aluminum producers run through 2013 magnesium supplies faster than expected, several contracts for 2014 have been negotiated earlier than usual, market sources said.

AMM’s spot magnesium price range has widened to $1.85 to $2.25 per pound from $1.84 to $2.22 previously.

"We’ve already signed a couple of arrangements for next year," one producer source said. "I would think that based on that the rest of the contract season will start earlier than it usually does." Customers to date have paid the same or more for 2014 material compared with this year, he said.

In most years, contracts are concluded in September or October but this year has seen some deals signed a month ahead of schedule, with some negotiations underway in the latter half of August, the producer source said. Those early contracts were for thousands of tons per year, small compared with big markets such as steel but significant to the U.S. primary magnesium market, he said.

"You have a situation where people see they are going to need more material in the fourth quarter. Then they have to decide whether they want to go out and bid that separately or as part of their negotiation for next year as well," the producer source said, noting that several had opted for the latter. "And if I’m selling additional material into my contract business, then the next time I get a quote for spot I’ll raise the price a little bit."

The flat-to-upward trend in prices comes as supplies of nonferrous scrap, such as used beverage cans (UBCs), which contain magnesium used to alloy aluminum, remain tight and expensive compared with primary aluminum, market sources said.

"We never got that summer slowdown that we typically do. And demand has remained strong," the producer source said. "For the aluminum guys, they’re needing more mag because they are using less scrap and more primary aluminum—so they’re more quickly running though the magnesium they thought they would need for the year." And while aluminum prices may be low, demand remains stable or better than last year, he said.

Outside of aluminum, magnesium is seeing solid demand from the automotive sector for instrument panels, steering wheels and die-cast parts, the producer source said. "The more vehicles you sell, the more raw materials you need."

Still, a source at one big aluminum producer warned against reading too much into some contracts being negotiated early. He said his company was still putting together its magnesium requirements forecast for 2014 and was in no rush to enter negotiations.

A trader also cautioned against being overly bullish. He said he hadn’t seen the U.S. market, always thin in terms of spot transactions, experience a jump in activity. While some market sources fretted that that could indicate a possible slowdown in the automotive sector, the trader contended it might be more reflective of typical seasonality, perhaps exacerbated by Labor Day and the Jewish high holidays falling so close to each other in 2013.

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