2020 PREVIEW: US aluminium scrap market foresees bleak year ahead
The outlook for US aluminium scrap prices in 2020 appears gloomy on the surface while the market in the United States remains plagued by oversupply, market sources say.
But pockets of optimism remain, with some participants suggesting that prices have now bottomed out.
“It changes every day. One day people think [China’s] going to take more product, more copper and aluminium, and the next day everyone’s saying they’re having a slowdown. I think it should have a positive impact but I don’t know when we’ll see it,” a buyer source in the US said, referring to the interim trade deal agreed between China and the US last month.
In the US, domestic aluminium scrap prices continued to trend downward in 2019 and some are now closing in on levels not seen since early 2009 following the 2008 financial crash; some fear they may set new lows this year.
Fastmarkets assessed aluminum scrap mixed low copper clips, buying price, delivered Midwest secondary smelters at 38-40 cents per lb on December 30, 2019, only marginally above the all-time low of 33-34 cents per lb seen in January 2009. The price started 2019 at 52-54 cents per lb.
Weakening prices have been fueled by rampant oversupply and, with sources expecting no significant increase in demand in the near future, it would seem that 2020 is set to be another difficult year for those in the scrap business.
“For something to fundamentally shift so that demand improves? I don’t see that happening,” a trader source said. “The secondary prices are still so low. There’s no real demand and there’s far more supply. I don’t see these [prices] jumping.”
In the US, product oversupply in the second half of last year has kept aluminium scrap prices on a downward trajectory. Reduced buying in the summer period resulted in an accumulation of material that was then built upon further when buying from China decreased as a result of copper and aluminium scrap import quotas.
China remains the leading destination for US aluminium scrap despite imports falling 25.8% to 337,128 short tons for January-October 2019 compared with the prior year.
Volumes decreased even further toward the end of last year after companies quickly reached their allocated quotas; Chinese imports of US aluminium scrap in October were 76.4% lower than the same month a year earlier at 7,362 short tons.
New scrap destinations
Despite the signs pointing to sustained weak demand, some in the industry are optimistic that the global aluminium scrap market may recover in 2020.
The Chinese government is expected to announce the renaming of aluminium and copper scrap in the first quarter of this year, which could prevent their inclusion on an outright ban on imports of solid waste that is expected before the end of 2020.
“I see the first quarter going up moderately at this point,” one US seller source said. “Scrap seems to be finding new homes, either new countries or the same countries but in different forms.”
South Korea has remained the second-largest importer of US scrap behind China, having imported 248,757 short tons in January-October 2019, a year on year increase of 15.8%.
US scrap deliveries to Malaysia have also surged while direct imports to China have slowed, increasing by 46.1% over the same period to 236,876 short tons.
Indian absorption of scrap has also increased to replace Chinese imports, rising by 32.9% year on year to 224,058 short tons in the January-October period.
Some secondary scrap prices rebounded slightly at the end of 2019 after scrap producers tried to reduce output in an attempt to give the market a boost.
“Twitch in particular has been a challenge in getting deliveries from all major producers... [They are] citing low availability of zorba,” a second buyer source said.
Fastmarkets’ aluminum scrap non-ferrous auto shred (90% Al) (Twitch) buying price, delivered to Midwest secondary smelters increased over two sessions in early December to 36-39 cents per lb on December 9 from 34-37 cents per lb on December 2. The price was most recently at 37-40 cents per lb on December 30 after rising to that level in mid-December.
“I do think they’re going to hit new lows,” the first buyer source said. “And I have no idea how it’s going to play itself out but there’s going to be consternation and strife.”