Japan aluminum alloy demand up as pace of automotive recovery quickens

Japan's spot demand for ADC12 aluminum alloy picked up this week ahead of automotive output recovering to 80-100% rates next month, market sources said Tuesday.

The plant run rates over April-June slumped to 40-70% of the levels before the March 11 earthquake, but automakers are aiming for 80-100% run rates over July-September.

Each vehicle components maker is recovering at a different pace depending on car sales.

A transmission components maker for passenger vehicles, located in Aichi prefecture, said his run rate was lower at 70-80% this month but will be raised to 80-90% next month, while an engine components maker said his plant run rate was higher now.

A motorcycle manufacturer has returned to full rates this month and issued a purchase tender for 3,200 mt of ADC12 last week -- the biggest tender since the March 11 earthquake. The company bought a mix of domestically produced ADC12 as well as imports for delivery over July-August, said a Tokyo trader.

While there was no tender for more than 500 mt following the motorcycle maker's one, all plants are on a recovery track, and were placing orders for 100-500 mt lots with the delivery period stretching over July-October, traders said.

A northwest Japan diecaster was asking for October deliveries eyeing a further ramp-up in Q4.

Separately, a central Japan diecaster increased daily purchase volumes to 300 mt/day last week from 200 mt/day. This company making oil pans and cylinder blocks buys mostly imports through purchase tenders for deliveries three month ahead.

A diecaster making transmission cases and cylinder blocks suspended purchase tenders last week. "The company has turned cautious as prices seem to be rising," a trader said. The company buys several hundred mt of imported alloy via tenders issued several times a week.

In a related development, Japan's two largest automakers, Toyota Motor and Nissan Motor, plan to issue purchase tenders for August-September supplies. The Toyota tender will be issued June 30, while the Nissan one is likely at the end of the month, traders said.

In another development, traders said they were buying small lots from China this week as prices indicated by Chinese suppliers were $30-50/mt higher than their price ideas.

Some Chinese producers want buyers price hikes of $20-30/mt in the coming months due to provincial governments in south China planning a new 10% tax on silicon metal contained in the aluminum alloy products.

ADC12 contains 10-12% silicon.

Meanwhile, South Korea's Hyundai Motor is likely to issue a Q3 purchase tender this week, according to Japanese traders.

While the Hyundai tender participants are restricted to domestic smelters, Japanese traders will take note of Hyundai's tender settlements as they may impact Japanese tenders, sources said.

"If Hyundai's prices are higher than the Chinese export price levels [reflecting robust South Korean demand], there is a lower possibility of South Korean smelters increasing exports to Japan at competitive prices," said a trader.