Scrap availability in focus for Europe’s secondary aluminium markets in 2024 | 2024 preview

Secondary aluminium markets in Europe should be significantly influenced by the availability of scrap through this year, with the rate of exports to Asia from Europe playing a key role in shaping price trends for ingot, according to industry sources

Secondary aluminium dealers across Europe said that rising scrap prices have supported ingot prices in the past few months, but that may change if scrap price weakness returns. Steady export demand for European aluminium scrap and ingot into Asian countries such as China, Japan, Malaysia and India have been adding support to European and British prices.

For the most part, aluminium scrap and ingot prices have been increasing steadily in recent months and look set to increase further in the near term, according to dealers. The main driver of European scrap prices are exports into Asia from Europe, but sources said European domestic demand for the first quarter seems better than expected.

But European export activity into Asia has waned most recently, dealers said. European exporters of both aluminium ingot and scrap had steady demand from importers in China, Japan and Malaysia until November, when both the euro and the pound sterling strengthened against the dollar; the euro is around 1.095 USD/EUR, up from about 1.055 USD/EUR at the start of November, according to currency converter website Oanda.com. The pound is around 1.27 USD/GBP, from about 1.21 USD/GBP in the same comparison.

The stronger euro and pound typically discourages holders of foreign currency to buy secondary aluminium material priced in euros or pounds and sold in dollars.

“From our perspective, due to market expectations of an interest rate decrease and inflation under control, this year looks better than 2023,” one European ingot maker said. “We have already seen LME cash prices increase; that, if maintained, will be supportive of secondary aluminium ingot and scrap prices. We have seen a strong shortage of scrap due to high export levels into Asia. Secondary aluminium ingot demand is firm for the first quarter, but prices will depend on scrap availability that is too early to forecast.”

“Also, European stocks are low in general due to the price losses through most of 2023, so restocking would also be supportive of prices and premiums higher this year from 2023,” the ingot maker added. Prices fell to around €2,000 per tonne in October, from about €2,400 per tonne in January.

The London Metal Exchange aluminium cash (Jan 24) Official was at $2,215 per tonne on Friday, down from $2,336 per tonne on January 2, but up from $2,082.50 per tonne on December 11.

Shipping routes

Also garnering attention recently has been the cost of containers via the Red Sea, an important trade route between Europe and Asia for ingot and scrap.

Attacks on shipping in the Red Sea launched by Houthi rebels based in Yemen from mid-December have caused major shipping companies to reroute their journeys away from the Red Sea-Suez Canal corridor and instead go around the Cape of Good Hope, pushing up freight prices.

Dealers have reported that numerous December shipments have been postponed due to volatile shipping costs and disrupted schedules. Deliveries are facing an additional delay of two to three weeks, Fastmarkets heard.

Short-term rates for container shipping between Asia, Europe and the US are jumping on reduced capacity caused by the ongoing threats to cargo vessels in the Red Sea. The spot rate for shipping goods in a 40-foot container from Asia to northern Europe now tops $4,000 (€3,654), a more than 170% jump from just before the diversions started in mid-December, according to some trade sources.

“A container to the Far East that cost £550 [$699] in December is quoted at £1,325 today,” one UK-based scrap supplier told Fastmarkets. “We export about 80 containers of aluminium scrap per month through that route, so we are £60,000 in debt already for January shipments,” the scrap supplier said. “Selling more scrap domestically suddenly becomes more attractive!”

“In the UK, there is plenty of scrap material available. Anyone who says different has vested interests,” the scrap dealer added. “There’s so much being exported of all scrap grades that could be consumed domestically if there was enough demand and/or competitive pricing.”

Underlying trends

Underlying trends are developing in consumer areas for secondary aluminium, notably car manufacturing and other heavy industry sectors, according to economic data released in Europe.

Eurozone factory output ended 2023 in retreat, with activity contracting in December for an 18th straight month, according to a survey that showed no sign of any imminent strong bounce in an economy likely in recession. The survey for final eurozone manufacturing Purchasing Managers’ Index (PMI), compiled by S&P Global, edged up to 44.4 in December from 44.2 in November, but was well below the 50 mark separating growth in activity from contraction. A big part of December’s manufacturing activity was generated by completing old orders, the index showed.

A second European ingot maker said: “There are some market expectations that regular customers will return for more material, but still the confidence is not so strong on the customer’s side. Automotive [demand] looks promising, with numbers looking firm this quarter and even stronger in the second quarter.”

“Construction business looks weak in the first semester of 2024, while from April it’s looking that not so much will happen, so another tough year for billet producers. Machining and equipment sectors are getting better, as some companies are holding cash and they are more eager for investment in assets now, while there are high hopes for strong demand in household goods and the furniture market,” the second ingot maker added.

Other European producers said that there is spare production capacity on the supply side, but present profit margins are not enough to justify the extra output. So, either scrap prices will fall, which sources said was unlikely, or ingot prices will increase if refiners do not panic and push their customers too hard, producers said.

“There is always this game between currencies, freight costs and profit margins,” a third ingot producer said. “Scrap is available, but it looks too expensive. As for the gas and energy situation, it’s getting better, but as far as we know most producers booked some energy prices upfront to manage uncertainty and hedge their costs, so we do not expect a big relief on that in 2024. As for labor costs, there is a lot of pressure for wage increases that will drive up the cost of production.”

In the UK, trade sources said low-grade alloys were in short supply, while demand was strong and, with LME cash prices generally indicated higher, combined with scrap shortages there was market expectation of a consequent move up in prices in the coming months.

Still, there were also some worries about the car industry, a major consumer of secondary aluminium ingot and cast parts.

“Our view is that the electric car bubble will burst this year as consumers realize the real running, repair and insurance costs, as well as diabolical resale values,” one trade source said.

“Cars on balloon finance and PCP [personal contract plan, a form of hire purchase agreement] deals will not be replaced one-for-one due to much higher interest charges, and so we are expecting things to get worse for new car sales as the year goes on,” the trade source said.

As for primary smelters taking more secondary materials, some trade sources said there was a lot of industry talk about the move, but not much action, and so they did not see that as a price driver in 2024.

Two pieces of European legislation were considered by European recyclers and industry groups to be major threats to the fair global trade of scrap metal at the Bureau of International Recycling (BIR) conference in Abu Dhabi, United Arab Emirates, late last year. These were the revamped Waste Shipment Regulation (WSR) and the Critical Raw Materials Act (CRMA).

But there are uncertainties remaining on the implementation and timing of both, which are influencing business operations at EU recyclers. A lack of clarity over regulation has meant that some investments into German scrapyards have been paused, market participants said at meetings in Dusseldorf, Germany, held by German association BDSV earlier this year.

“The material just goes to Hong Kong, Malaysia, Vietnam or Thailand instead for pre-melting, so ingot can be supplied to China instead,” one UK-based trade source said.

There has also been industry talk of secondary aluminium smelters switching more output to low copper alloys. Trade sources anticipated more demand for higher purity scraps, such as high silicon and low copper content material, which may push prices a little higher on purer low copper grades of scrap this year.

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