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Japan alloy rush may boost US zorba

Keywords: Tags  scrap, aluminum, zorba, China, Japan, secondary alloy, ADC12, Sean Davidson

NEW YORK — Domestic and export prices for zorba, a nonferrous auto shred comprised mostly of aluminum, could trek higher in August as Chinese smelters look to fill up inventories to cater to strong alloy demand from Japan, according to some market participants.

China’s secondary aluminum smelters account for the majority of the alloy supply to Japan’s die casters, and source zorba as their primary raw material.

Some exporters said that a rush by Japan’s auto sector for Chinese secondary aluminum alloy ADC12 stemmed from supply disruption concerns, and has already led to some smelters committing to alloy sales for the last three months of the year.

Other smelters are expected to enter negotiations with Japan’s die casters as early as next week, which is highly unusual as this is nearly four to six weeks before Japan’s die casters and China’s smelters have historically negotiated prices and supply for the last quarter of a calendar year.

China’s secondary aluminum alloy ADC12 is similar to the benchmark U.S. A380.1 alloy and auto die casters’ most widely used alloy.

Reports that some Chinese smelters have turned their attention to other Asian markets like India alarmed Japan’s die casters, one exporter said. "We believe we will see zorba prices going up because of the situation in Japan. Japanese die casters are nervous about ADC12 supply. They will go out for October-to-December metal since they are worried they may not get their supply. There is a short-term run on people buying ingot for December as we speak. Obviously prices have had to go up on ADC12 since people are selling forward. It is in harmony with the Shanghai Metal Exchange."

China’s smelters do not have sufficient ADC12 supply to cater to the surge in Japanese alloy demand and lack the required raw material like zorba or other aluminum scrap on the ground to produce it, the exporter said. "So we see zorba prices to China going up for August shipments. I am surprised. If I were a secondary smelter in China, the last thing I would do is sell ingot for December. They are naked on ADC12 for December. They don’t hedge. They don’t have the raw material. And it’s a dicey road using prime. It’s crazy."

A second exporter said that zorba prices to smelters in southern China have already strengthened by 1 to 2 cents per pound this week.

"Demand for zorba out of north China is extremely soft, with quotes 71 to 72 cents per pound c.i.f. basis. However, demand and pricing into south China is higher at around 75 cents per pound c.i.f.," he said, detailing prices for a 94-4 quality of zorba, which indicates 94-percent metallic content with at least 4 percent red metal scrap.

Domestic prices for zorba into media plants are around 71 cents per pound delivered for the same grade, he added. "I see domestic zorba demand relatively strong going forward. However, I believe the slow but steady increase in export demand will force the domestics to raise pricing."

Other exporters, however, said demand from China was weak and they expect it to remain that way for some time.

"It seems zorba demand hasn’t improved much from China over the past few months. Prices have increased, but only very slightly; 70 to 73 cents per pound seems to be a range for the common 92- to 94-percent metallics, 3- to 4-percent red metals, depending on quality," a third exporter said. "Inventories for secondary aluminum scrap in Asia remain high, lowering demand to pull from the U.S. and forcing more to remain domestic. China has not come back in the market in a significant way for zorba to really drive prices. This is mostly due to the negative arb(itrage) on aluminum in China, and that could remain in place for quite some time."

Most participants in the domestic market said there was abundant supply of zorba and reported a shipping point price range of anywhere between 65 and 68 cents per pound for 90- to 92-percent metallic-content zorba.

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