SHANGHAI, Jan. 28 (SMM) – Processing fees of A356 aluminum alloy to the factory rose to around RMB 700/mt as demand from wheel factories is growing with the upcoming Chinese New Year. Trading activity in spot market improved.

According to SMM’s latest survey’s domestic A356 alloy producers, the total output at the surveyed 18 producers was 125,200 mt in January, with operating rates at 64.87%, up 11.17% YoY and 0.23% MoM.

Aluminum alloy producers began to implement new long-term contracts with wheel factories after entering 2013, with the ex-works price virtually unchanged from last year at RMB 450-500/mt. Processing fees to the factory, on the other hand, rose RMB 50/mt MoM to RMB 650-700/mt in January.

Demand generated by year-end restocking was the main reason behind the rising processing fees. Unlike past years when wheel factories were busy building up stocks, traders have taken a bigger proportion among buyers at the end of this year. Liquidity remains tight at wheel factories, while traders have ample working capital. In this context, wheel factories mostly buy aluminum alloy from traders at higher prices and pay in arrears. Meanwhile, rising raw material prices such as silicon also pushed processing fees of A356 alloy up.

SMM expects aluminum alloy processing fees to decline to previous low levels after the Chinese New Year.