Export demand sees Europe Al scrap markets detach

European aluminium alloy and scrap raw material markets have slowed into the third quarter as manufacturers traditionally take maintenance breaks over the summer months. As usual, aluminium alloy prices have fallen back as nearby demand dips and the weather warms, but this year the market is not seeing concurrent falls in scrap markets as demand from export markets in Asia has remained consistent throughout the year so far.

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Even as European demand for aluminium scrap has fallen away over the past few weeks, prices have maintained their current high levels as supply has been drained by consistent demand this year from export markets in Asia, feeding strong manufacturing activity in China as its recovery from Covid-19 lockdown restrictions has coincided with a fresh focus on new infrastructure development under its latest five-year plan, which started this year.

European DIN 226 diecasting alloy prices recently peaked at €1,950-2,000/t delivered on May 20, before falling steadily to now stand at €1,880-1,930/t. Meanwhile, European scrap prices have maintained or even increased levels. Aluminium scrap taint/tabor stands at €1,270-1,320/t delivered from €1,250-1,300/t on May 20, while tense scrap prices have stayed at €1,350-1,400/t in that time.

In other geographies, scrap prices have fallen in line with slowing activity in the third quarter. US scrap prices have dipped in recent weeks. High-grade aluminium scrap turnings have slipped to 67-70¢/lb now from 71-72¢/lb at the end of May, while mixed turnings have fallen to 64-65¢/lb from 66-68¢/lb.

European scrap markets have become detached from their downstream consumer markets and from other regional scrap markets because of high export demand from Asia, which has risen this year after a strong showing in 2020.

EU aluminium scrap exports under commodity code 7602 fell to 4.36mn t in 2020 from 4.41mn t in 2019, national customs data show, but exports to Asia climbed to 995,617t last year, or 22.8pc of total exports, from 917,079/t in 2019, which was 20.8pc of total imports.

The EU exported 1.67mn t of aluminium scrap in the first five months of 2021 with 26.53pc making its way to Asia. Exports to China fell last year owing to that nation's scrap quota system and have not recovered under new scrap import specifications issued late last year, but exports to India and other Asian countries have risen.

This demand has leached scrap supply from European yards this year, and dissuaded suppliers from accepting lower prices even as domestic demand has waned and alloy prices have fallen.

"Scrap prices have been falling in the US, but Europe is still so tight," one alloy producer said.

Traditionally scrap prices could be expected to fall through the slow summer months ahead of the resumption of buying activity towards the end of the third quarter, but that is not happening this year. Alloy producer margins have been squeezed as alloy prices have fallen back and could be squeezed further when producers must start scrap purchases again.

"We're very concerned about the August/September period, because sooner or later we will need bigger volumes of scrap," a second alloy producer said.

Scrap supply has been further tightened by disruptions to automotive production caused by the shortage of semiconductors for vehicles. This has led to lower volumes of production scrap from manufacturing operations and from shredder operations as lower auto sales lead to lower rates of scrappage.

"The car industry has not recovered from the difficulties in its supply chain due to the semiconductor shortage," a third alloy producer said. "Some say things will get better after August, but others see it continuing until 2022."

When auto manufacturing activity does recover, the effect in scrap markets will be felt first on greater demand for feedstock for new alloy production, while the benefits for scrap supply will be delayed, leading to even greater pressure on alloy producer margins.

Source: By Jethro Wookey/Argus Media group.