Japan aluminum alloy trade quietens ahead of Toyota buy tender result

Trading of imported ADC12 aluminum alloy in Japan has calmed down ahead of the closing of Toyota Motor's third-quarter buy tender on Friday as market participants waited for the results, sources said Tuesday.

Two traders said deals were done at around $2,240/mt CFR Japan for several hundred tons of Chinese-origin material to be shipped to Japan in July-August. The material was to be sold to diecasters and not for building up stock, they added.

Tender-related buying activity was not seen as most market participants were expecting Toyota's award levels to fall from the current quarter.

Two market participants said the London Metal Exchange high grade aluminum prices have weakened, triggering local aluminum scrap prices to fall. As a result, they were seeing a 3-6% drop in local ADC12 ally prices in the coming months from May.

Toyota Motor, like other Japanese automakers, looks for lower purchasing costs due to reduced profit margins from exports amid volatile exchange rates, sources added. The automaker exports 60-70% of its cars produced in Japan.

Meanwhile, despite end-users seeking lower alloy prices, Chinese alloy import prices, unlike local alloy, showed no signs of softening, sources said. Chinese alloy producers use US-origin scrap prices of which have not fallen, traders added.

Toyota buys both locally produced ADC12 alloys as well as imported material.

Japanese traders said most Chinese producers were offering at around $2,250/mt CFR Japan for July-August shipments, unchanged for the last three weeks. Alloy imported from south Europe had been trading $60-70/mt lower than Chinese alloy but even then, the Chinese producers sustained their offer levels due to high scrap costs, traders added.

"There is a producer offering at as low as $2,220/mt CIF Japan. But the $2,220/mt CIF Japan cargo is for early August shipment and we needed earlier shipments," said one trader.

Meanwhile, outlook for Toyota's alloy requirement volume for the upcoming July-September quarter was positive.

Toyota Motor may increase its total purchase quantity as the automaker is likely to produce 15,000 passenger vehicles/day in Japan over July-September, said several supplier sources. This suggests that in July, with 20 operating days, its output may hit 300,000 vehicles, compared with 250,930 vehicles produced in April.

But one trader said Japan's power supply remained an issue. Power usage in Japan peaks in the third quarter due to higher temperatures, and plants in west Japan may be asked to lower operating rates at short notices, he said.