Secondary aluminum alloy market dim in consumption peak season in 2021

Asian Metal: Hello, Mr. Zhu. Thank you for accepting Asian Metal’s interview. Please introduce your company briefly .

Mr. Zhu: Hunan Hongtuo Aluminum Co., Ltd. produced over 50,000t of alloy aluminum ingot in 2017, with an annual output value of 650 million yuan (USD101 million). The company has superior traffic location advantages. It is 8 kilometres away from Miluo City, 1 kilometres away from Miluo East station of Wu-Guang high-speed railway, and 8 kilometres away from Beijing-Zhuhai high-speed way. At present, the company has 1 office building and 7 workshops, including casting workshop, finished product workshop, sorting workshop and recycling workshop. The casting workshop introduces domestic advanced alloy aluminum ingot production equipment such as regenerative combustion system, automatic pig casting machine, etc, and can produce various grades of alloy aluminum ingot. Our company’s products are mainly used in automobile, motorcycle, aluminum product manufacturing and other industries, and the products are generally sold to Zhejiang, Jiangsu, Shanghai, Guangdong and many other places.

Asian Metal: July and August are generally regarded as the tradional sluggish seasons for aluminum alloy consumption, what about the market performance this year?

Mr. Zhu: July and August are considered as the traditional off-season of consumption in the previous years, during which the demand for secondary aluminum alloy ingot declined apparently. But this year, the demand maintains strong during these two months. From the perspective of orders from downstream clients, the main reason lies in the back-flow of orders from Southeast Asian countries to China due to the counterattack of epidemic abroad. Die-casting plants usually cut output by about 30% from July to August in the past, while the plants didn’t cut production at all or part of them reduced by oyly about 10% in the same period of this year.

Asian Metal: Though the demand remains strong in the traditional slack season this year, the market performance turns weak in the tradional peak season, namely September and October, what do you think are the reasons for this?

Mr. Zhu: The market showed weak performance in September and October and downstream consumers held wait-and-see attitudes. The main reason is that the prices of secondary aluminum alloy ingot continue rising from late August. Until late September, the price of ADC12 aluminum alloy ingot increased to RMB24,000/t (USD3,750/t), up by about 75% from RMB13,700/t (USD2,141/t) in the same period of last year. Besides, the tight supply of automotive chip this year also led to the soft demand for secondary aluminum alloy ingot in the automotive industry from September to October.

Asian Metal: In Q3, the prices of secondary aluminum alloy ingot kept moving up. What do you think is the main reason for the price increase?

Mr. Zhu: I think it's mainly because of the continuous shortage on domestic aluminum scrap supply that pushed the prices of secondary aluminum alloy ingot to keep moving up in Q3. Normally, secondary aluminum alloy ingot producers holds an inventory of aluminum scrap for 10-15 days' consumption. But this year, most of the domestic producers’ inventory can only maintain for 3-5 days' use, which leads them to ensure the supply for regular clients preferentially, so that the market supply shunk.

Asian Metal: In Q2 and Q3 of 2021, aluminum scrap market stays in tight supply continuously. What do you think are the reasons for the shortage of aluminum scrap?

Mr. Zhu: I attribute the supply shortage of aluminum scrap in Q2 and Q3 to mainly three aspects. First of all, China began to ban the entry of foreign waste last year, which led to a decrease in the import of aluminum scrap from 1.4 million tons in 2019 to 800,000 tons in 2020, and the import volume will further decline this year; secondly, aluminum ash, aluminum slag, and aluminum chips are classified as hazardous waste and could no longer be used as raw material in 2021 because China improved the environmental protection requirements, which leads to the reduction of raw materials for secondary aluminum alloys; lastly, suppliers of aluminum scrap hold back from selling owing to the increasing prices of primary aluminum.

Asian Metal: What are the negative impacts of aluminum scrap supply shortage on your production?

Mr. Zhu: The first impact is the low capacity utilization. At present, our operating rate records only about 40%, which stands far away from our expected rate of 60%. As a result, the quantity of orders exceeds the output.

Asian Metal: Will the shortage of aluminum scrap supply alleviate in Q4?

Mr. Zhu: If the prices of secondary aluminum ingots continues rising, we expect that the tight supply of aluminum scrap may alleviate in Q4. Currently the downstream small die-casting plants wait and see the market and have cut production by about 70% because of the high price of secondary aluminum alloy ingot. If the demand from die-casting plants for secondary aluminum alloy ingots continues declining, the producers will become overstocked and the demand for aluminum scrap will also see sharp decline. In addition, the power restriction in Guangdong, Jiangsu areas weakens the demand for secondary aluminum alloy ingot as well. At present, we start to accept orders actively, while we stayed in no hurry to sell before mid September.

Asian Metal: How do you confront with the shrunken supply of aluminum scrap in the current market?

Mr. Zhu: For the current shortage of aluminum scrap supply, our solution is to increase the number of suppliers. In the past, 5-6 suppliers could meet our demand, but now we need to increase to 10-13 suppliers to ensure the supply.

Asian Metal: What is the development plan of your company? Is there any new project?

Mr. Zhu: We have no plan to continue to invest in new projects now. At present, our capacity utilization rate is only about 40% and still needs to be improved. As a small and medium-sized enterprise, our main target is, first of all, to focus on the customer and improve the quality of our products constantly; secondly to improve the service consciousness and maintain smooth cooperation with clients. Meanwhile, we aim to develop new products and materials to improve the core competitiveness; we also need to continuously develop new clients and optimize customer groups; then we need to strengthen the internal management further and explore the domestic market actively, with the purpose of "providing more refined products and sincerer service". We strive to become the leading enterprise of the renewable resources industry in Hunan Province.

Asian Metal: Thanks again for accepting this interview and wish your company a better future!

Mr. Zhu: We would also like to thank Asian Metal for on-time and accurate market information service.