Aluminum markets slowing down.

Aluminum markets are on a downward descent, though from discussions with a number of traders, the somewhat sharp decline was not unexpected. Eerily echoing the bursting of the dot-com bubble, many processors and brokers note that while London Metal Exchange prices have been showing sharp declines, the market for nonferrous metals is still somewhat stable overall.

One processor says that aluminum prices have fallen fairly sharply since the beginning of April. For aluminum scrap, spreads are going up.

As to the reason for the declines, a number of traders say that there has been some speculative trading, with some companies selling at the top of the market.

While the correction may be a bit painful for some processors, another broker in the Midwest says that the decline during May basically came a little bit earlier than the usual summer slowdown.

While prices have dipped somewhat sharply, the expectations by a number of aluminum watchers is that the material will likely trend downward for the next several months.

On the downbeat side, the much-publicized problems with the domestic auto industry--General Motors, Daimler Chrysler and Ford--have cast a bit of a pall on the market. Without any near-term signs of a pickup in demand, some aluminum suppliers are seeing orders from the auto industry extending out further than usual.

On the more positive side, aluminum rolling mills remain busy, and several scrap processors say that the sheet metal and extrusion industries are doing OK.

One area of concern had been the labor problems at Wabash Alloys' secondary aluminum smelter in Wabash, Ind. With union employees locked out because of an impasse in contract talks with management, several aluminum scrap suppliers wonder what the impact will be on the industry.

From conversations in the Midwest, it appears that, for the most part, the problem has been minimal. While scrap purchases have been scaled back in light of slower production schedules, most of the other aluminum scrap has been able to find another home.

The offshore market offers mixed reports. While China has played a significant role in the run-up in prices for many scrap metal commodities over the past year, opinions range on what the China market is doing at the present time. Several vendors say that China, as well as other Asian countries, have slowed their purchases right now, though some deals can still be made.

Several other vendors say that while the strong buying from Asia has waned, at least temporarily, material still flows steadily offshore. This should help keep aluminum scrap markets in a decent balance through the languid summer months.

Reflecting the somewhat bearish outlook for aluminum scrap markets in the short term, several speakers at the ISRI National Convention in mid-April forecast a decline in aluminum scrap markets as supply catches up with demand in the global marketplace.

Speaking at the conference, Blair Stewart of JW Aluminum, Charleston, S.C., mentioned several issues that may have a negative impact on aluminum markets throughout the next year or so, including more rolling mills coming online in Russia, as well as increased production in China and the fact that the housing market, which has been on a tear, could start to decline, creating a domino effect on aluminum markets, knocking down prices.

During the same session, James King of James King Consulting, a U.K.-based consulting firm, said his organization forecasts global supply catching up with demand by the end of this year. In his forecast, this will Idrive the average LME aluminum price down to $0.727 in 2006 and $0.643 in 2007, from an average this year of around $0.816.

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