Aluminium scrap tightness in Europe is forcing rolling mills and extruders to source more units from primary metal for their plants.

“Scrap availability is at a critical level across central Europe too: southern Germany, Austria, Slovenia, Hungary,” one large buyer of aluminium units said.

“Now we are forced to use more primary, not because of the calculation [of whether using primary is more economical than using scrap], but because there is no scrap,” the buyer said.

Scrap availability has fallen as a result of low aluminium prices on the London Metal Exchange and lower overall scrap generation in Europe, market sources said.

“If you are normally using scrap, and you can’t get scrap, you have to turn to prime P1020,” a source at one large rolling company said.

But the restriction on supply of prime grades of scrap, such as clean HE9 extrusions and group 1 pure 99% & litho, for primary smelters is also the result of competition from producers of secondary material, a source in the UK scrap industry said.

“The producers of secondary aluminium — LM25 and LM6 — can afford to pay more for scrap than the mills.

“You can find a secondary smelter in Germany that will pay you more for litho or HE9 than a mill,” he said.

This is because mills and extruders, which price the commodity aluminium they buy and the aluminium in the product they sell on the LME, have not seen scrap prices fall to the same degree as aluminium on the exchange, which has squeezed their capacity to bid competitively for secondary material.

And secondary ingot prices are performing comparatively strongly.

By way of illustration, on January 2 clean HE9 extrusion scrap was priced at £1,080-1,130 ($1,759-1,841 on a historical basis) in the UK , while cash aluminium on the LME was $2,093, and LM6/LM25 secondary ingot was £1,630-1,660 ($2,655-2,704), according to Metal Bulletin's price book.

On September 18, HE9 was trading once again at £1,080-1,130 ($1,725-1,805), but cash aluminium on the LME had fallen to $1,741.5-1,742, and LM6/LM25 was £1,720-1,780 (£2,747-2,843).

Last month, sources in the secondary aluminium market said they expect prices for scrap and secondary aluminium ingot to move higher in the fourth quarter, though scrap availability is also likely to improve in the event that aluminium prices on the LME also rallied.

Large mills, which in more normal circumstances the scrap industry source supplies regularly, have not even approached him for a price quotation in recent weeks.

“They know full well that I can’t speak to them about prices that they could accept,” the scrap industry source said.

Alex Harrison
aharrison@metalbulletin.com
Twitter: @alexharrison_mb