European aluminium scrap and secondary prices to be supported, participants say: 2022 preview

Piled aluminium rods_2022 Preview watermark

Piled aluminium rods_2022 Preview watermark

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Market participants expect prices for aluminium scrap and secondary ingot to remain robust in 2022, with demand from the automotive sector anticipated to pick up by the second half of the year.

Despite a recent sharp decline in price levels for European secondary ingot DIN226, participants are hopeful that higher levels will return in the new year on the back of strong market fundamentals.

“The fall of 226 is over,” one European secondary smelter told Fastmarkets.

“The trend is now bullish again and there is some tension in the market because of a lack of raw material,” the smelter added.

Fastmarkets assessed the price for aluminium pressure diecasting ingot DIN226/A380, delivered Europe at €2,300-2,350 per tonne on December 24, after falling by almost €500 per tonne from the highs seen earlier in autumn.

DIN226 prices reached an all-time high earlier in the year and were assessed at €2,750-2,900 per tonne on October 15 due to record high silicon prices and consumers battling to ensure stockpiles were full after fears of ingot production halting.

Many market participants were shocked that prices reached such high levels despite one of the key end-use markets demanding muted quantities.

Prices, however, have been falling over recent weeks due to decreasing input costs and well-stocked consumer inventories after the period of panic buying, but sentiment is shifting, and participants are relying on strong demand and tight supply to provide support into the new year.

Return of automotive…?

Many market participants have based their bullish thesis on the potential ramp up of automotive demand in 2022.

According to data released from the German Automotive Association (VDA), automotive production levels in Germany were down by over 1.3 million units between January to September 2021 from the same period in 2019, having a significant impact on European secondary business.

However positive signals are emerging from the automotive industry, with consumers requesting larger quantities for the first quarter of 2022, participants said.

“I see strong demand for Q1 2022… all my [automotive] clients are buying at almost full capacity. We should see prices recovering,” a second smelter told Fastmarkets.

“All of the [original equipment manufacturers] will place the [orders] and January will go well and there’s not much [supply] to go for February,” a third European producer said.

Others, however, see the optimism as “aspirational” rather than realistic, with many carrying the burden of high prices paid for alloying elements such as silicon earlier in the year.

“This so-called ramp up is aspirational,” one UK based die-caster said. “Many automakers are telling us they don’t see any resumption until 2023. 2022 will still be in slack.”

“Producers in many cases do not want to hear about [lower bids],” a European trader said. “They still have silicon purchased at €9,000 per tonne and need to spend it,” they added.

Scrap to remain supported with spotlight on ESG

Record high scrap prices also provided support in 2021 and acted as a crutch for secondary ingot prices in times of lower demand, and scrap prices are expected to be well supported throughout 2022, participants told Fastmarkets.

Fastmarkets assessed the price for aluminium scrap clean HE9 extrusions, delivered consumer UK at £1,950-2,050 per tonne on October 13, the highest level the price has seen since Fastmarkets began assessing it in 1995 and a 62% increase from the same time in 2020.

With greater emphasis on environmental, social and governance standards and consumers looking to source sustainably across the supply chain, scrap, which is often sold at a discount to primary feedstock, appears an obvious choice with production emissions of secondary aluminium at just 5% of the emissions generated through the primary production process.

As a result, there is a growing list of large multinational organizations that are announcing plans to invest in and expand recycled product lines and post-consumer scrap usage.

One of the most recent was the announcement made by Norwegian aluminium company Norsk Hydro regarding the three pathways to net-zero emissions, of which one is focused on greater investment into the use of post-consumer scrap to meet growing “low-carbon” consumer demand.

Investment into enhanced scrap sorting and treatment facilities from companies such as Hydro are also intuitive ways for companies to grow their profit margin.

“If we are able to source more difficult scrap, which has a lower purchase price than the cleaner scrap, then the margin [could be] very interesting,” Norsk Hydro chief executive officer Hilde Merete Aasheim told Fastmarkets.

Other recent announcements include the collaboration project between Raffmetal and Cromodora Wheels to create high performance primary alloy wheels from post-consumer scrap material.

“This is important news,” one European aluminium trader told Fastmarkets.

“It is confirmation of the fact that European secondary [aluminium] production has positive fundamentals. It is a confirmation of [the need for] low Co2 scrap in the supply chain in Europe which is a plus for this industry. It gives hope for the secondary industry,” the trader said.

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