European aluminium alloy 226 lower, negative sentiment creeps in

Secondary aluminium prices drifted lower in Europe this week in quiet market conditions as negative sentiment on the economy and future demand levels crept into the physical market, sources said.

"Our plants are fully booked and sold out for Q4 but everyone is talking about the financial crisis," said a German producer.

A German alloy buyer agreed that the sentiment in the market was much more "negative."

"People are nervous about what will happen in November and December. I think we will reduce our demand levels slightly next month," he said.

A second German alloy maker said that he felt buyers were being very careful not to over-order and were also seeking lower prices going forward.

In addition, the recent drop in metals prices on the London Metal Exchange was prompting diecasters to push for lower physical alloy prices.

"We saw a selloff in copper and aluminium, so trend-wise buyers are expecting 226 prices to come down," said the first producer.

But in spite of negative news in the financial markets "the real economy is OK," said an Italian seller. "I'm confident that 2011 won't be a repeat of 2008 when we saw a vacuum in demand, prices and deliveries at the end of the year. Orders are still coming in," he said.

Spot market prices in Germany ticked lower this week. An Italian seller said he had sold various lots for October/November delivery at Eur1,780-1,790/mt, delivered.

German sellers were still achieving slightly higher price levels. "I see the market in the Eur1,800-1,830/mt range this week," said one supplier.

Another German producer said that he saw the market at Eur1,830-1,850/mt but added: "It is possible it goes below Eur1,800/mt delivered because of the weaker LME." Meanwhile, a German consumer said that he was looking to buy for November at Eur1,750-1,760/mt. "Prices are coming down," he said.

A second German consumer said that he saw the market at Eur1,780-1,790/mt and said prices were under pressure because "there is plenty of scrap and aluminium is still struggling on the LME." An East European producer said they had offered Eur1,840/mt delivered for November/December but buyers were seeking Eur1,800/mt. "Our customers hear about the crisis, they look at the LME going down and want lower numbers," he said.

Prices in Italy were heard at Eur1,750-1,760/mt delivered works. "We see Eur1,750/mt as a psychological barrier but the market could go below that until things become more stable," said a seller, who added that some buyers had cut orders slightly.

Spanish alloy demand was said to have picked up this week, said a Spanish producer. Prices in Spain were heard at Eur1,790-1,820/mt delivered.

The Platts physical alloy price assessment moved down Eur10/mt this week to Eur1,780-1,830/mt delivered Germany.

The LME official cash settlement price for primary aluminium was set at $2,170/mt Thursday, down $16 from $2,186/mt a week earlier, and was $196 lower than $2,366/mt four weeks ago on September 8.