European aluminum alloy 226 oversupply bites; StockachAlu to close

Oversupply of commodity grade aluminium alloy, 226, has continued to put pressure on prices and squeeze European producer profit margins. German producer Stockach Aluminum (StockachAlu) was one of the first casualties this week following its decision to close its 25,000 mt/year facility by the end of 2016.

“The decision was made against the background of the enormous oversupply on the market, which no longer allows for production at sufficient margins,” the company said in a statement dated Thursday.

StockachAlu plans to focus on its wrought alloy production and the production of casting alloys will be concentrated at the locations of its sister company, Oetinger aluminium, in Weissenhorn and Neu-Ulm, which have a joint capacity of around 190,000 mt/year.

Both Oetinger aluminium and Stockach aluminium were acquired by private equity fund Special Situations Venture Partners (SSVP) III, advised by Orlando Management in December 2013 and May 2016 respectively.

Market players were largely unsurprised by the news of StockachAlu’s closure but many suggested that although the closure would not tighten the market physically it would, however, give many a warning shot.

“Many producers will look at this [StockachAlu closure] and resolve not to make the same mistake,” said a European trader.
Oversupply of secondary aluminium in Europe has built since the summer, and as a result, European producers have been forced to fight for business and ingot sales prices have come under intense pressure.

Spot market prices for Europe’s key grade of aluminium alloy, 226, have fallen by some Eur100/mt (about $107/mt) since mid-June, while aluminium scrap costs, which are the key ingredient, have fallen by much less, estimated in the region of Eur50/mt.

Prices for 231 alloy were also flat at Eur10/mt at Eur1,540-1,600/mt delivered Germany, plus credit. There are growing concerns over the financial health of Europe’s secondary aluminium market as producers fight to keep scrap costs down.

“Scrap traders see the LME rise and want to get higher prices but in the physical market 226 ingot prices are too low to make money,” said a German producer.
Scrap merchants are hanging on to stocks as the LME is high so they don’t want to lower prices.

“The more people who have sold in the area of Eur1,500/mt the quicker we will see a price turnaround in the New Year — and [maybe] bankruptcies too,” warned an Italian supplier.

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