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232 impact on die-casters diverges vs 301: Nadca

Sep 12, 2018 | 04:53 PM | New York | Michael Roh

Tags  die-casters, aluminium, steel, tool steel, twitch, aluminium scrap, A380.1, metals prices Steve Udvardy


Die-casters in the United States have largely been insulated from the Section 232 tariffs' disruptive impact on the primary aluminium market due to the industry’s minor exposure to primary aluminium versus the secondary market.

“Thus far the 232 tariff on aluminium [at 10%] has not impacted the US die-casters as yet but could in the future if primary aluminium increases in price and the higher price [of] primary hit the scrap stream for secondary aluminium production,” Nadca president Steve Udvardy said on Tuesday September 11.

Indeed, Section 232 tariffs - announced in March - disrupted the primary aluminium market and injected volatility into US aluminium premiums.

American Metal Market’s assessment of the Midwest P1020 premium was at 20.5-21 cents per lb on September 11, down from a more than three-year high of 22-23 cents per lb in April - the highest level recorded since reaching 23.75-24 cents per lb in February 2015.

Meanwhile, there has been some impact on US tool steel producers, who have been forced to pass down costs incurred by the Section 232 steel import tariff of 25% to their customers, including die-casters who require tool steel for their cast equipment. This has made US tool steel producers less competitive than those foreign competitors that are not required to pay the tariff.

More disruptive are the Section 301 tariffs, which are making it more costly for US die-casters to purchase tooling and die-casting machines from overseas, namely China.

A recent Nadca survey revealed that roughly 30% of US die-casters source their tooling, machines and other equipment from China, according to Udvardy.

On the secondary aluminium side, import restrictions from China are causing some scrap aluminium grades to pile up in the US.

The Chinese government, in retaliation against the US Section 232 tariffs, announced a 25% tax on imports of US aluminium scrap. This has forced US aluminium scrap exporters to grapple with the significantly reduced presence of the largest buyer of the material.

Scrap aluminium prices plunged as a result, with non-ferrous auto shred (twitch) tanking to a near-decade low. American Metal Market assessed the twitch price at 47-49 cents per lb on September 10, unchanged from the prior assessment but still the lowest level recorded since April 2009.

But the spread between benchmark A380.1 secondary aluminium alloy and twitch is at its widest level since October 2008, holding at 47 cents per lb.

Alloy producers are reaping significant profits from the historically wide spreads, with strong demand from die-casters allowing them to keep alloy prices high, alloy producers told American Metal Market.

Alloy prices have also resisted the scrap pressure because of diminished capacity with seasonal furnace maintenance. Many alloyers are still burning through scrap metal purchased before prices tanked, one die-caster said.

But Nadca is optimistic about the die-casting industry’s demand outlook for the years ahead.

“Although some slight softening is anticipated for this year, this and the next few years should be good years. The worldwide forecast is continued growth in the automotive sector, especially with the rapid growth in China and India. Housing is at a healthy level of about 1.2 million single family homes being built this year,” Udvardy said.

Still, at the Institute for Scrap Recycling Industries Roundtable in Chicago last week, attendees were bearish on the automotive sector. Some expect a slowdown in US auto production based on forecasts for customer demand. A slowing US auto industry would also cause some pull-back in demand from original equipment manufacturers, attendees told American Metal Market.

Some die-casters are also bracing for a slowdown but aren't too concerned, expecting US President Donald Trump’s administration to roll back standards propping up the adoption of electric vehicles.

“They’ve got these new fuel standards and Trump’s trying to change them. If he does, it will slow [the development of] electric cars. It looks like it’s going to be slow but [now] the car business is good,” a second die-caster said.

Uncertainty over the longevity of the tariffs is impacting foreign investment in the US and has implications for future demand for cast metal products.

“With the unknown future of tariffs, manufacturers in foreign countries have not been quickly setting up plants in the US. But some are considering doing so to avoid their products being subjected to the tariffs/taxes,” according to Udvardy.



 

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