Chinese secondary aluminum alloy ingot demand to increase in Q2

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

Mr. Hu: Our company was established in 2003 and currently has more than 200 employees and three 30-ton reverberatory furnaces. At present, it mainly focuses on nonferrous metal smelting, mechanical die-casting; production, processing, and sales of alloy aluminum ingot. Our customers mainly come from industries such as auto parts, motorcycle parts, communication electronics, power tools and household products. We strive to provide customers with excellent die-casting aluminum alloy products.

Asian Metal: The price of aluminum has been rising since February. Do you think what the reasons are ?

Mr. Hu: First of all, in 2020, countries affected by the pandemic continued to inject money into the market to stimulate the economy, and the inflation rate moved up, pushing up the prices of raw materials for bulk commodities, which is the main reason for the rise in aluminum prices. Secondly, the capacity ceiling of primary aluminum in China was determined, and the overall supply of primary aluminum kept stable in 2020. In addition, the strong demand in the first quarter is also an important reason for pushing up aluminum prices.

Asian Metal: What is the impact of the continuous rise in aluminum price on the price trend of secondary aluminum alloy ingot?

Mr. Hu: The prices of raw material aluminum scrap increased driven by the continuous rise in aluminum prices, resulting in an increase in our production cost of secondary aluminum alloy ingot. The production cost increased by about RMB1,500/t (USD228/t) after the Spring Festival compared with that before the festival, so prices of secondary aluminum alloy ingot continued to rise accordingly. In the end of the first quarter, as prices of secondary aluminum alloy ingot kept fluctuating at high levels of RMB17,300-17,700/t (USD2,634-2,695/t) EXW D/P, downstream consumers began to wait and see the market, leading to an increase in sales pressure. We halted the operation of a smelting furnace in mid-March to reduce inventory pressure.

Asian Metal: The supply of cast aluminum scrap has been tight since the second half of last year. Could you introduce the reasons? Besides, when do you think the tight supply will ease?

Mr. Hu: First of all, with the stricter environmental protection requirements, some aluminum scrap products with high impurity content, such as aluminum ash and aluminum debris, were banned, and the overall supply of aluminum scrap declined. Secondly, China's policy of banning the import of solid waste led to a sharp decline of about 40% in the imports of aluminum scrap in 2020. Finally, the price of primary aluminum kept rising in the first quarter. In fact, 12% of the raw material aluminum scrap we used in the fourth quarter last year could be replaced by primary aluminum, but we will suffer losses if we continue to do that because the price of primary aluminum keeps fluctuating at a high level now. Therefore, we only use aluminum scrap as the raw material at present. According to the current market, the supply of aluminum scrap in China will keep tight before April. However, the imports of aluminum scrap in the second quarter are expected to increase by about 10% quarter on quarter, and the dismantling volume of aluminum scrap in China is increasing, so the tight supply of aluminum scrap is going to get eased.

Asian Metal: The demand of downstream die-casting plants for secondary aluminum alloy ingot is now likely to keep strong in the end of the first quarter. How do you judge the demand for secondary aluminum alloy ingot in the second quarter?

Mr. Hu: Our downstream customers are mainly in fields such as auto parts, motorcycle parts and general mechanical parts. The overall demand for secondary aluminum alloy ingot of die-casting plants is now likely to keep strong at the end of the first quarter based on the orders from customers. There was always a peak in demand in April and May, so the demand may not be very bad in Q2 this year and it is expected to increase compared with that in Q1.

Asian Metal: At present, China is vigorously developing new energy vehicles. With the increase in the production of new energy vehicles and the gradual withdrawal of oil-fueled vehicles, will the demand for secondary aluminum alloy ingot in the automotive industry decline?

Mr. Hu: The most common part of an oil-fueled vehicle using die-casting aluminum alloy is automobile engine and shell of gearbox. New energy vehicles have no oil-fueled engines, so the demand of this kind of vehicle for engine-used aluminum alloy will disappear. Although the demand for secondary aluminum alloy ingot in the automotive industry does not decline significantly, the application of the material in the industry tends to decrease in the future. With the development and application of new materials, aluminum alloy would be used in more fields, so I continue to be optimistic about the demand for aluminum alloy in the future.

Asian Metal: Which industries do you think would act as the main contributors to the consumption growth of secondary aluminum alloy ingot in the next three years?

Mr. Hu: In addition to the traditional auto parts, motorcycle parts, general mechanical parts and other fields, industries with development potential in the future such as 5G communication industry, household appliances, 3C electronic products and household products can also bring new growth points of downstream consumption of secondary aluminum alloy ingot.

Asian Metal: Facing the fierce competition in secondary aluminum alloy ingot market in China, what is the future development direction of your company and whether there are any new projects?

Mr. Hu: Chongqing Zhongqiang Nonferrous Metals Co., Ltd. will continue to devote to the secondary aluminum alloy ingot industry, improve product quality, enhance service level, maintain its leading position in the field of motorcycle parts, general mechanical parts and auto parts, and constantly expand the customer groups of industries such as 5G communication, household appliances and household products. Our company will also increase R&D investment, improve enterprise innovation ability, constantly develop new products, and broaden the application fields of secondary aluminum alloy ingot. At present, we have no plans to invest in new projects.

Asian Metal: Thanks so much for accepting this interview. We wish your company a prosperous business.

Mr. Hu: I am very grateful to Asian Metal for providing such an information exchange platform for we enterprises. I hope Asian Metal will continue to provide us with more and more timely metal information.