Increasing container costs and tight scrap availability concerns for aluminium industry

Tight aluminium scrap availability, the increase in container costs, sluggish demand in the US and the US market’s current indifference to rising premiums in Europe and Asia were the top subjects discussed during the Harbor Aluminum Summit that took place in Chicago on June 4-6

Scrap tightness

Tight scrap availability globally was one of the most discussed topics, both on stage and on the sidelines during the summit.

Market participants in the US have been voicing concerns about aluminium scrap tightness in the country. They told Fastmarkets that the significant increase in the number of mills and recycling capacity expected to come online in the next few years would exacerbate scrap tightness going forward.

“Scrap supply is very tight, and it is not anticipated to get better any time soon,” one aluminium trader said.

“More and more companies are investing in recycling capacity, so the pool of scrap consumers is so much larger than before,” they added. “You can’t mine more scrap, so you need to look at improving recovery, utilization, etc, in order to meet the growing demand.”

“More companies are utilizing scrap as a cheaper alternative for low-carbon production, over investing in low-carbon power supply, which is time consuming and difficult,” one Mexican producer said.

Traditionally Mexico was one of the leading recipients of aluminium scrap generated in the US, but high scrap demand from China and India has also affected the availability of scrap in the country, according to market participants.

“India has huge demand for scrap. This is tightening up all regional supply in North America and making it very difficult,” according to a third market participant.

“My scrap suppliers aren’t able to offer large volumes anymore,” the Mexican producer said. “India is attracting so much scrap.”

This limited supply was leading to increased demand for primary aluminium in the US and Mexico, some sources said.

Demand

Conference attendees were split about the current state of demand in the US.

“People are saying there is no demand, but it is better than it is being painted,” a fourth market participant said.

They said that there were pockets of weakness depending on region and industry, rather than a general weakness: “For example, construction industry is doing worse than the auto industry.”

Many market participants said the US market was waiting to see the results of the presidential elections in November, and that this wait-and-see attitude has hampered demand.

This election sentiment has been “not so good” for business, keeping spot transactions limited, according to a fifth market participant. But forwards were getting booked in the US, so going forward, traders that have been late to book tonnes will not be able to find them, they added.

“The US market is perfectly self-sufficient for now, and domestic needs are being met by Canadian supply,” the fifth market participant said.

US market resilient

“There’s no need for the US to be importing additional tonnes while demand is at current levels, which means it isn’t having to compete with Europe and with Asia,” the fifth market participant added.

In contrast, rising freight costs and tight availability across Europe and Asia have spurred premiums higher in both regions, with some noting increased regional competition for tonnes.

Fastmarkets assessed the aluminium P1020A premium, in-whs dup Rotterdam at $250-270 per tonne on Wednesday June 12, up from $135-155 per tonne on January 2, with Europe increasingly reliant on imported tonnes following significant capacity curtailments in recent years.

Participants in the duty-unpaid market in Rotterdam have been keeping a close eye on rising container freight costs, and higher offers in the negotiations for third-quarter supply to Japan.

Container costs

Due mainly to the freight bottlenecks in the Red Sea, and the subsequent delays in shipments, market participants said they have been seeing container prices going back up in the past one to one-and-a-half months.

“The big problem is container availability, not only freight [prices],” a global trader said.

“With the drought at Panama Canal and the Houthi [rebels attacking ships traveling though the Red Sea], we started seeing a container shortage again six months ago,” they added. Seasonality is also exacerbating the container shortage, according to market participants.

Fast-developing market in Mexico

According to market participants, Mexico, along with India and Indonesia, is among the fastest growing aluminium markets, and the country is currently presenting itself as a great opportunity for investment.

Mexico is known as the “US factory” because more and more companies are buying units in Mexico, one market participant said, adding that usually these companies import P1020 into Mexico without tax, make billet there, and sell it to different places, including the US.

“This is a moment of high visibility for Mexico,” another market participant said on the sidelines of the conference.

In April, the Mexican government announced it was establishing temporary tariffs on the import of goods related to steel and aluminium from China.

But it partially revoked these tariffs in May, upon complaints from the local industry regarding the tariffs’ impact on the supply chain, local industry and trade flows.

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