The European aluminium alloy market has seen demand volumes drop significantly in recent months, and producers do not expect consumption to recover before the end of the year.
Argus' DIN226 diecasting ingot price stood as high as €1,760-1,800/t delivered at the start of May last year. It fell to €1,580-1,620/t at the start of September before falling further to a decade low of €1,350-1,400/t in mid-November. Prices rose over the year-end period amid fresh buying, but soon fell again because of limited demand volumes.
The contract now stands at €1,380-1,440/t, but with rising scrap costs market participants on both the buy and sell sides now feel the market could be at a bottom. Many producers are now considering cuts in response to their vanishing margins.
"The problem is that this year we have had mostly stable scrap prices while ingot prices have been falling, and our margins have become very low," one ingot producer said. "We are at the point now where we have to decide if we want to run at full production or not."
The factor taking most of the blame for falling demand volumes in Europe is the performance of the automotive sector — long established as the crown jewel of the European alloys market. Many carmakers in Europe have struggled to maintain delivery volumes since the implementation of the EU's Worldwide Harmonised Light Vehicle Test Procedure (WLTP), which replaced the old New European Driving Cycle (NEDC) test in the wake of the Volkswagen emissions testing scandal that broke in September 2015.
The WLTP was applied to all new car registrations as of September last year. The longer test times and more stringent criteria forced some carmakers to delay new models to allow for more time to adhere to the WLTP regulations. So far in 2019, deliveries by major carmakers have been hit as manufacturers scramble to make their engines comply with the new rules.
"Volumes are down, we can't deny it," an ingot consumer and supplier to the automotive market said. "Demand for auto body sheet is down, and the impact [on aluminium] will be substantial."
German carmaker Volkswagen reported a year-on-year fall of 7.2pc in vehicle deliveries for March, with sales falling in Europe, Asia and South America. First-quarter deliveries were down by 4.5pc on the year. Elsewhere, Fiat Chrysler Automotive (FCA) Group saw sales plummet by more than 12pc on the year in the first quarter.
The European Automobile Manufacturers Association said recently that total car sales in western Europe fell to 3.67mn units in the first quarter, from 3.81mn in the same period of 2018. And there is little hope that the drop in carmaker demand for aluminium alloy as a result of the WLTP-related issues will be reversed at any point this year.
Anecdotally, several market participants have reported extensive delays in the acquisition of new vehicles, either for personal use or as part of a company car policy. These delays were not a part of the market a year ago.
"Car manufacturers are not ready for what the market is calling for, and it will be into 2020 before they are," a second ingot producer said. "In the meantime, the market will suffer."
It is not just depressed demand from carmakers that is hitting alloy producers in Europe. Rather there is a confluence of factors hampering business, of which the WLTP is just the latest.
"Making this a purely emissions discussion would be wrong," a third ingot producer said. "The falling exports to China, the tariffs between the US and China, and Brexit, are all influencing the situation, and leading to lower sales across Europe."
Fundamentally the market remains in decent shape, with construction markets improving in Europe this year. And while deliveries from carmakers are down they are technically only delayed, and strong automotive sales in Europe can be expected to resume once the obstacle of WLTP has been negotiated.
But that will take time, as will any resolution to the multiple trade disputes that have gripped industries around the world since the election of US president Donald Trump. Certainly there are few that expect better times to come this year.
"In 2018 we had supply issues, but in 2019 we are seeing big demand issues," the ingot consumer said.
