Smelters that held off cutting scrap buying prices last week began lowering them this week, many lopping off 2 cents a pound for some items. Some smelters might be low-balling prices at the tail end of the summer lull in an effort to maintain margins as the auto industry’s woes start to drag down the pricing of die-casting alloys.

The tea leaves from the London Metal Exchange (LME) are pointing downward for aluminum alloy. The LME’s aluminum contracts generally bottomed out July 21, rebounded for most of August and have now slid back toward July’s lows. Primary aluminum avoided falling quite that far. However, the LME’s North American special aluminum alloy contract was nearly 2 cents below its July trough for most of last week before staging a mild recovery.

The optimistic possibility is that lower U.S. aluminum scrap prices might soften the impact of the auto industry weakness domestically. However, many market participants are braced for a further decline.

American Metal Market August 30, 2006