Secondary aluminum alloy industry hit by auto chip shortage

Asian Metal: Mr. Li, thank you for accepting our interview. Would you please first give us a brief introduction to your company?

Mr. Li: Wantai Aluminum has developed for more than 30 years in the casting aluminum alloy ingot and aluminum liquid direct supply industry, with an annual output of more than 400,000 tons. It mainly provides main engine plants or die-casting manufacturers with aluminum alloy ingot or aluminum liquid, including ADC12, AlSi9Cu3, AlSi8Cu3, AlSi10MnMg, A380 and AlSi9Cu4, used by engine cylinder block, cylinder head, gearbox shell, automobile structural parts, etc. At present, the aluminum alloy with high thermal conductivity and electrical conductivity developed for 5G project is gradually put into mass production and supply, and the plant in Zhejiang mainly produces aluminum plate and strip. In 2017, Wantai Aluminum was selected to be shot by CCTV's Craftsman Spirit, and it has been broadcast on CCTV's Outlook channel for many times. It is the only enterprise selected in the industry. In line with the professional spirit of "through the recycling of aluminum, energy conservation and emission reduction, to achieve the ultimate goal of circular economy, beautifying the environment, social benefits and customer satisfaction", Wantai aluminum is developing steadily and moving forward all the way.

Asian Metal: Aluminum prices kept rising in the second quarter, so what do you think are the reasons for the continued increase in aluminum prices?

Mr. Li: On the one hand, the imports of secondary aluminum and aluminum scrap have decreased since the end of last year due to the change of national policies. At present, the epidemic in China is controlled faster than that in foreign countries, and the demand of downstream customers for aluminum increases, resulting in tight market supply. On the other hand, after the epidemic was brought under control, countries began to print a large number of currencies, especially the United States, to stimulate economic development, which resulted in an inflation and a sharp rise in the prices of commodities. Of course, some malicious speculations on supply and demand information are not ruled out.

Asian Metal: In the second quarter, the price of secondary aluminum moved up with the increase of aluminum prices. What is the impact on aluminum alloy producers and downstream consumers?

Mr. Li: The continuous increase in the price of secondary aluminum led to a significant impact on the production cost of aluminum alloy ingot producers and die-casting manufacturers. Our sales price of secondary aluminum alloy is determined according to the average market price in the previous month, but it is impossible for us to lock in the price for all aluminum scrap orders for next month at the end of the month. Therefore, we were buying raw materials while producing, and the price kept rising. As a result, the price of raw material became higher than the sales price of aluminum alloy and aluminum alloy producers suffered losses. Meanwhile, in the face of a sharp rise in the price of aluminum alloy, downstream consumers couldn't adjust the sales price of die castings temporarily because they had signed semi-annual or quarterly contracts. Finally, some downstream consumers had to give up some orders to reduce losses. The actual sales volume of our aluminum alloy in the second quarter was about 15% less than the original plan.

Asian Metal: What do you think are the factors that affect whether aluminum price can continue to rise sharply in the third quarter?

Mr. Li: Whether the aluminum price will rise or fall in the third quarter mainly depends on three factors: the change of policy, the change of the relationship between supply and demand and the strength of national regulation. From the current point of view, the policy orientation in the third quarter is to maintain the stability of bulk commodity prices, and the price of aluminum is more likely to be stabilized. It was the off season in July and August in previous years, but the demand in foreign markets is strong this year with the impact of the epidemic, so the demand in the downstream market is not necessarily weak. In addition, measures such as carbon neutralization, power and production restriction in Yunnan, Inner Mongolia and other regions led to a shortage of supply in the primary aluminum market. At present, China will take the macro-control over the market to stabilize the commodity prices, and whether the aluminum prices can rise substantially is also greatly affected by the macro-control.

Asian Metal: The supply of aluminum scrap in the second quarter remained tight. Do you think the tight supply of aluminum scrap in the third quarter can be alleviated?

Mr. Li: There were two main reasons for the tight supply of cast aluminum scrap in the second quarter. First, the primary aluminum prices continued to rise in China, and aluminum scrap suppliers held back from selling. Second, in the second quarter of this year, the customs conducted strict inspections on imported aluminum scrap, and lots of aluminum scrap was returned and the import volume of the material declined. Among them, the import volume decreased by 1.35% in April and 69.52% in May on a month-on-month basis. In the second quarter, the supply of aluminum scrap was still tight even as many die-casting plants cut production impacted by the shortage of automobile chip. If the automobile chip problem is alleviated in the third quarter, the demand for aluminum scrap might increase further in the third quarter, and the supply of aluminum scrap might become tighter.

Asian Metal: In the second quarter, the shortage of automobile chip led to a decline in the demand of the automobile industry for secondary aluminum alloy ingot. Has your company been affected?

Mr. Li: Our aluminum alloy ingot sales were also impacted due to the shortage of automobile chip, but the overall impact was not significant. It led to a reduction in production of about 15% as planned. As COVID-19 vaccination rates continue to improve around the world, we believe the shortage of automobile chip would begin to ease by the end of this year.

Asian Metal: July to August is the traditional low season of the automobile industry. Will the demand for secondary aluminum alloy ingot in the automobile industry not be weak in the slack season due to the gradual recovery of automobile chip supply in July to August this year?

Mr. Li: There is a possibility of this, as the shortage of automobile chip led to a 9.3% month-on-month decline in production in April and 8.7% in May. If the supply of automobile chip recovers in July to August, auto makers might catch up to make up for production and it would not be a dull season in July to August.

Asian Metal: In the face of the fierce competition in the domestic aluminum alloy industry, what is the future development direction of your company, and whether there are any new projects?

Mr. Li: First of all, we should improve our competitiveness in the weak links. For example, pure aluminum alloy faces the disadvantage of high cost of aluminum ingot remelting. This year, we built a new plant in Guyang, Baotou, Inner Mongolia and another in Funing, Wenshan, Yunnan. The two plants mainly use primary aluminum liquid to produce aluminum plate and strip or pure aluminum alloy ingot. Direct use of aluminum liquid can reduce the cost of remelting and carbon emission. In recent years, without any special changes, Dalian Wantai still only produces aluminum alloy liquid, committing to be a good supplier of aluminum alloy liquid.

Asian Metal: Thank you very much again for accepting this interview. I wish Dalian Wantai Aluminum Co., Ltd. always walk in the forefront of aluminum alloy industry with prosperous business and customers all over the world.

Mr. Li: I am also very grateful to Asian Metal for continuing to provide us with information about the aluminum industry, and I wish Asian Metal to be stronger and stronger.