Several secondary aluminium alloy producers are suspending production at their smelters for upward of two weeks after automakers put vehicle output on hold, with buyers from that sector representing the bulk of secondary ingot demand.
Market participants have been on edge since automakers, including General Motors Co, Ford Motor Co, FCA US LLC, Honda, Hyundai and Toyota announced they would suspend production until the end of this month, with decisions on extensions to be revisited on a week-to-week basis starting in April.
Ford announced on Thursday March 26 that it would restart production at select plants as early as April 6, drawing backlash from the United Auto Workers union.
The shutdowns have already caused spot market orders to dry up.
“Everything is dead except for Covid-19,” one producer source said.
A second producer agreed. “I don’t know five people who have a purchase order. I’ve never seen anything like it,” this source said.
“Automotive is a big kahuna in the cast alloy industry. So if you’re not making cars, you’re not making castings. There’s still some smaller stuff being done, but most is automotive or small engines or tools,” a third producer source said.
Still, many producers maintained their offer prices, seeing no need to endanger pricing by chasing limited sales.
“We’re in conservation mode now more than ever. We won’t discount our inventory by any means because we’re worried we’re not getting enough made. We are keeping prices up,” a fourth producer source said.
“Even if automotive is down longer than we think, we just need to preserve inventory as best we can,” he added.
A fifth producer agreed. “We wouldn’t discount just to lose money,” this source said.
Fastmarkets’ price assessment for aluminium alloy A380.1, delivered Midwest US was at 66-69 cents per lb on March 26, widening downward by 2 cents from 68-69 cents per lb previously and reversing the upward trend that began in the benchmark price last October.
Even with producers suspending production, most have kept their offers in the high 60-cent range. But a deal at the bottom end of the assessed range was reported, while others in the market noted a lack of spot business this week.
With automotive die-casters representing the lion’s share of demand for secondary aluminium ingot, several secondary aluminium alloy producers confirmed they will take their smelters offline for anywhere from a few days to two weeks.
Real Alloy began a production suspension at its Wabash, Indiana, plant and its Cold Water, Michigan, north plant on March 27. The company also reduced production at its Mississauga plant in Ontario, Canada, to run at just 20% of capacity.
Spectro Alloys, in Minnesota, began a partial two-week production shutdown. The company continues to ship metal, with its furnaces running at a fraction of capacity to produce parts for the health-care sector while hospitals experience shortages of crucial medical equipment.
Superior Aluminum Alloys in New Haven, Indiana, is operating at reduced capacity but still accepting scrap, Fastmarkets learned on Thursday April 2.
Audubon Metals in Henderson, Kentucky, suspended production this past week, but plans to restart production on Saturday.
Other secondary ingot producers were also considering temporarily taking their smelters offline.
“You take out demand, then you must take out supply. [Automakers] took outages a week ago. That’s where [secondary alloy producers] are at now,” the third producer source said.
“It is a fluid situation, but if you take out 3-5 million car sales it will be a tough year or two,” a sixth producer source said.
The uncertainty surrounding a timeline on when automakers will return production to normal and when the virus situation will improve has made it difficult for producers to plan ahead.
“It’s frustrating because the auto industry doesn’t know what to do. We basically logjammed the entire industry. If they don’t need to produce cars, they don’t need parts and then they don’t need aluminum,” the second producer said.
“It’s going to take a while to get back to business as normal with the supply chain. Especially since there’s so many moving parts,” the fourth producer said. “Forecasting is nearly impossible. Looking month to month is hard.”
The third producer agreed, noting that “everything is moving day by day, hour by hour.”
Some sources speculated that some capacity could be taken offline permanently if secondary ingot producers are forced to file for bankruptcy, with rumors of one major domestic alloy producer losing its credit insurance.
“I’m highly doubting [the alloy producer will] make it through this. They were on life support to begin with. Whenever you lose credit insurance, that’s the kiss of death in the scrap industry. Because it would take a tremendous amount of cash to keep running.”
The second producer echoed that sentiment. “Every [secondary] smelter will have a hard time. All of us could be on the verge of bankruptcy to some degree. [The market] had a bad three months already... We’re anticipating this will keep pushing out. But I think if the automakers don’t come back in 30 days, multiple companies will go bankrupt.”
Editor's Note: This story was updated on Thursday April 2 with the current status of Superior Aluminum Alloys' operations.