Competition for Japan's engine aluminum market heats up on Chinese slowdown

Tokyo — Japan’s market for secondary aluminum alloys used for car engines will become more competitive for overseas suppliers with the slowdown in Chinese demand, Shigenori Hayashi, managing director for Japan’s Daiki Aluminium Industry said Monday.

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Chinese demand for aluminum used for engine and other automotive components has been muted since October, Hayashi said. “I have noted that some Chinese suppliers [who are] focused on domestic sales, are turning to the export market, and I am hearing more Chinese offers overseas,” he said. China Association of Automobile Manufacturers said last Friday China’s vehicle output fell 10.1% year on year to 2.33 million units and sales were down 11.7% at 2.38 million units. Year-on-year sales had fallen for the fourth consecutive month.

Hayashi noted that the increase in Chinese auto aluminum supply in the export market became noticeable after the National Day Discount Holidays © holiday week in the first week of October. According to CAAM, vehicle output and sales totaled 22.83 million and 22.87 million units over January-October, down 0.4% and 0.1% year on year respectively. Output and sales over the first 10 months marked the first decline on record this year, the association said.

Automotive industry sources in Japan — the second largest car making nation in Asia — said the decline in Chinese car sales was within their expectations. “There is no surprise in the Chinese data. The US-China trade war is impacting Chinese consumer sentiment,” one automaker source, who declined to be named, said.

“This is just a beginning. The real impact will be worse than the year-on-year decrease of a few percentage points, and we are going to see lower car-related figures for China,” one engine components maker source said. Japanese automaker sources also said they were closely monitoring how the slowdown in China’s car sector would impact global prices of copper, aluminum, steel and other commodities.

They generally expected prices to soften. One automaker source pointed out copper prices on the London Metal Exchange fell 15% since the trade war intensified in June. “I expect metal prices to soften and this is not too bad for buyers,” said one Japanese auto component supplier source.

Japanese vehicle production has been holding stable and sales are expected to increase in 2019, ahead of the Japanese consumption tax hike in October 2019. “Japan will be a dumping ground for raw materials,” Hayashi said. In the near term, Japan is expected to absorb excess aluminum alloy supplies resulting from slowing car production in China as well as in Europe.

Competition in the Japanese secondary aluminum alloy market is heating up with more sellers from China and Europe, in addition to regular Asian sellers, Hayashi warned. “We hear offers from Europe when the euro depreciates due to Brexit, Italian fiscal budget issues. In October, one major European automaker suspended raw material purchases, but I hear they have restarted, though not entirely.

European demand is not expected to recover until the end of Q1 2019 at the earliest,” Hayashi said. Market participants said offers for ADC12 — aluminum alloy used for Asian car components — from Europe were extremely competitive. Spanish and Italian suppliers were quoting £100-£200/mt lower than Asian levels in the last month or so, pressured by shipping deadlines ahead of Christmas Discount Holidays © holiday season, market sources said.

Lower market prices do not mean a glut in ADC12 supply, Hayashi warned. “It is difficult to see where demand and supply will be. It will also depend on China’s plan to halt all scrap feedstock imports in 2020,” Hayashi said.

Chinese secondary aluminum smelters import scrap and export recycled aluminum alloy ingot mainly to Japan. –Mayumi Watanabe,[2] –Analysis by Lucy Tang,[3]

–Edited by Irene Tang,[4]


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