Japan's aluminum extrusion demand falls on weak housing starts

Japan's aluminum extrusion demand, that has enjoyed 13 months of continuous growth, has turned sluggish following a fall in new houses being built, market sources said Monday, September 22.

"Initial signs were there," a local rolling mill source said, pointing to construction-related extrusion shipments falling 8.1% year on year to 43,766 mt in July, according to Japan Aluminium Association's data.

Construction accounts for 60% of the total extrusion demand. Positive signs in the machinery sector failed to cover the weakness in construction demand and total Japanese extrusion shipments in July fell 4.3% year on year to 71,640 mt, after posting a year-on-year growth for 13 straight months.

The JAA attributed the fall in July shipments to a 9.5% year-on-year decline in new housing construction starts in June. The industry, however, was hoping that the fall was due to a summer lull and that demand would reappear in September. JAA will release the August figures on September 30.

Orders from housing and building sectors typically see a rise in September leading to a hike in prices in the October-December quarter. This year, price hikes in Q4 were seen as inevitable by market sources due to the rising London Metal Exchange aluminum prices and import premiums.

"From October, prices are expected to rise Yen 30 (27 cents)/kg so I was hoping for heavier order volumes in September, but I have been disappointed," a domestic trader handling extrusions said.

Orders had been stable for structures used on the ground, but those for doors, windows and other exterior parts were below expectations, he added.

"The stable order for ground structures shows that construction projects slated to start before March 2015 are on schedule, but there have been delays in other works due to manpower shortage and unexpected rise in raw material costs," he said.

In July, Japan's new housing starts fell 14.1% year on year to 72,880, the sharpest year-on-year fall for the month since 2009.

"The fall is expected to continue after August in reaction to the pre-tax hike demand," said Tokuji Harada, a spokesman for Japanese extruder Sankyo Tateyama Holdings. Japan's sales tax rose to 8% from 5% in April.

Harada said the slow housing starts affect extrusion demand almost immediately, while buildings take a longer time to impact as projects are for a longer period of several months to more than a year.

Demand in the second half of the Japanese financial year, from October-March 2015, was likely to fall compared with the first half of the fiscal year, a rolling mill source said.

Total aluminum extrusion shipments over April-July totaled 277,502 mt, up 1.2% year on year, according to JAA data.

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