Die casters question Nasaac’s effectiveness

NEW YORK — The North American Die Casting Association (Nadca) has filed a letter of complaint with the London Metal Exchange calling for immediate changes to the North American special aluminum alloy contract (Nasaac).

Nadca, which claims to represent more than 95 percent of all North American die casters, has been experiencing "significant issues with the effectiveness" of the Nasaac contract, the group said in an April 25 letter to the chairman of the LME’s aluminum committee Gavin Prentice.

"Unless (the) LME can make changes to the contract immediately, Nadca will encourage all die casters to discontinue support of the Nasaac for pricing finished aluminum parts within the industry," Nadca said in the letter.

Representatives from the LME didn’t respond to requests for comment.

Nadca said it has multiple issues with the contract’s effectiveness.

For example, the group alleges that many producers of 380 aluminum alloy will no longer sell to consumers on a Nasaac basis; material purchased on Nasaac isn’t deliverable within the stated LME contract period; and producers and consumers can’t acquire physical Nasaac material from the LME-listed warehouses in less than nine months from the time of order. Nadca also alleges in the letter that "the market is perceived as being manipulated by the trading, financial and warehouse industries given financial ownership of LME warehouse facilities."

These issues have together led to a lack of correlation between the LME’s Nasaac prices and the physical price of 380 aluminum alloy, Nadca alleged in the letter.

"Nadca is determined to bring awareness of the die casting industry’s issues with the Nasaac/LME," Daniel L. Twarog, Nadca’s president, told AMM April 30. "We are doing this in order to create a fair and equitable arrangement between the customers we provide quality high-pressure die casting to and our industry."

The cash Nasaac contract ending the official session at $1,755 per tonne (79.7 cents per pound) April 30, up slightly from $1,730.50 per tonne (78.4 cents per pound) a day earlier, which marked its lowest level in nearly three and a half years.

By comparison, AMM’s A380 alloy price has held steady in a range of $1.04 to $1.05 per pound since March 14.

Several die caster sources have told AMM that there has been widespread delinking between Nasaac and the physical aluminum alloy market over the past six months.

"It is no longer market-based and it does not follow normal market fundamentals of supply and demand," a source at a major die casting company said, adding that the situation is making things difficult for companies to purchase metal and sell aluminum castings in a way that properly shares risk and rewards with market participants, including domestic auto manufacturers and financial institutions.

A number of die casters said their margins are being squeezed by having to sell on an Nasaac basis to the auto manufacturers, who use the Nasaac prices to assess the value of the aluminum alloy contained in auto parts. But others pointed out that the auto manufacturers are unable to shift from Nasaac-based contracts because of their own financial obligations.

"The real problem is that auto firms would like to make a change but the financial community, who have interests in the contract, will simply not allow it to happen," one industry participant said.

"This issue is more important than just my company; it’s the entire industry. ... We need a vibrant industry and the guys that are 100-percent automotive are absolutely getting killed. If something doesn’t change soon, the industry will face some very serious challenges in the near future," a second die caster said.

"Unless the die casters can get metal from the Nasaac warehouse in a timely manner at the price they are publishing, we will encourage our industry to discontinue support of the Nasaac for pricing aluminum die castings," Twarog added.

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