UK secondary aluminium ingot prices surpass pre-pandemic levels

UK secondary aluminium prices continued to rise on Wednesday August 26, with a regional supply squeeze pushing LM24 ingot prices above the levels seen before the Covid-19 pandemic began.

The UK secondary aluminium market has suffered considerably as a result of Covid-19 and its associated industrial lockdown.

All related UK industry effectively ground to a halt in March when carmakers, the main consumer of secondary material, shut their factories. Prices plummeted with demand coming to a complete halt practically overnight.

Fastmarkets assessed the price of aluminium scrap, LM24 pressure diecasting ingot, delivered consumer UK, at £1,000-1,050 ($1,312-1,378) per tonne on March 25, after the first major European car manufacturers announced partial closures.

But the weekly assessment of that price was most recently up by 19.5% to £1,200-1,250 per tonne on August 26, surpassing the £1,190-1,230 per tonne pre-shutdown level.

A severe supply squeeze in the UK’s somewhat imbalanced UK secondary aluminium market was responsible for the upward trajectory of LM24 ingot prices.

But far from being optimistic about the prospect of higher-trending prices, many markets participants were nervous that this upward momentum would come at a cost to the industry, which was already under pressure.

“The markets are going mad. Demand for ingot is unprecedented within the UK,” a producer in the country told Fastmarkets. “I haven’t seen it like this since the rebound in 2008-09 after the [global financial] crash.”

Indeed, with automotive end-users continuing to ramp up production, intending to come back online in full force from September, diecasters and foundries were scrambling to produce enough castings to service the sector.

But while demand was now plentiful after months of shutdown, many were uncertain whether they could secure sufficient tonnages of material to fulfil it. While ingot end-users continued to ramp up production, many UK smelters were languishing at sub-50% capacity utilization.

“Metal availability remains tight, with most smelters not having recommenced normal output,” a second UK producer said.

Far from rushing to turn on their furnaces to service these end-users, many producers were opting not to sell on a spot basis at all.

They were actually reluctant to offer material in the current climate. Those rare smelters which were willing to sell spot were offering such high prices - in an attempt to protect their scrap margins - that even those consumers that were short of metal were baulking at the cost, sources said.

Nonetheless, large UK consumers caught short of metal were faced with the prospect of having to swallow these higher prices, to their own detriment.

Sources indicated that, in some instances, the Covid-19 pandemic has also affected the creditworthiness of certain market participants.

Some were reported to be struggling to purchase material on favorable terms due to poor credit or a lack of financial options, with lenders pulling out of commodity financing, which in turn has increased the spot offers they have been made.

“It’s going to be a very challenging time for the secondaries,” a third UK producer told Fastmarkets.

All the while, raw material prices have continued to rise.

Before the shutdown, smelters were reported to have de-stocked to such an extent that scrap was now in extremely short supply, making it even more unprofitable to produce ingots despite the growing demand.

“Scrap is still the major issue, from my point of view. There is not a lot of availability [but there are] rising prices,” a fourth producer in the region said.

Scrap grades such as aluminium scrap, commercial pure cuttings, delivered consumer UK, remained in short supply, facilitating a second weekly price increase to £770-820 per tonne on August 26, from £750-800 per tonne the week before.

Producers and consumers appeared to be at an impasse.

The UK secondary aluminium market will remain supply-driven for the time being, with ingot production failing to satisfy demand from prominent UK consumers.

And market particpants were broadly of the opinion that prices will continue to rise in the near term, with no signs of an end to the current squeeze.

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