European aluminium alloy producers are becoming increasingly concerned about the availability of aluminium scrap units, with a number of factors further suppressing that availability at a time when demand for alloy units is slowly increasing after a period of weak industrial activity.
Scrap supply levels in Europe have been tight for several years now, with the constant pull of strong international demand draining availability of scrap across the spectrum of grades. Buyers in Asia have long been major scrap consumers, most notably in India and China where unsophisticated but highly effective sorting methods allow for the processing of wide-ranging qualities of scrap metal.
In 2021, aluminium scrap exports from the EU reached a record 1.1mn t, with 296,000t going to India alone, according to data from statistics unit Eurostat. In 2022, India was the largest importer of aluminium scrap on a global level with 15.8pc of global imports totalling $3.87bn, almost 14pc of which came from EU countries.
The appetite for aluminium scrap from Asian markets has supported scrap prices in Europe as buyers have been forced to pay up to keep some units in domestic regions, leading to a fall in profit margins for aluminium alloy producers that use scrap as feedstock.
Scrap prices increased significantly more than alloy prices in 2023, and have maintained their high levels so far in 2024. The Argus assessment for taint/tabor scrap delivered to European works stands at €1,550-1,600/t, flat to the start of the year, while the assessment for 2pc tense scrap has reached €1,650-1,700/t from €1,630-1,680/t at the start of the year.
Demand from Asia has, to the surprise of many in the industry, remained robust, even against higher freight costs and longer lead times, as a result of the Red Sea crisis, which has threatened cargoes passing through the Suez Canal and forced shipping to be rerouted around the Cape of Good Hope.
"Buyers in Asia are still offering very aggressively, even with the added costs of shipping," one alloy producer said.
Against such tight scrap availability in Europe, alloy demand is starting to improve. And as alloy producers face better demand for their products, they are now looking to the scrap market to cover their raw material requirements for those second-quarter products. And they are finding inadequate reserves on offer.
"There may not be enough to go around," the alloy producer said.
And there are other factors sapping scrap supply in Europe, or raising domestic demand for it. The push for ever greener primary aluminium has prompted the development of improved technology that has enabled primary metal producers to utilise more scrap units in their production, by allowing for the processing of grades that used to be of too low quality for primary smelters to incorporate. This trend has further diminished the availability of scrap units for secondary aluminium producers.
And the EU's carbon border adjustment mechanism, which entered its transitional phase in October ahead of its full implementation in January 2026, has left many importers scrambling to find alternative sources this year and next as their current suppliers cannot provide the required information under the legislation. With some product imports likely to be cut off from Europe, the demand for domestically produced units and their scrap feedstock will increase.
Some alloy producers have been trying to raise alloy prices consistently this year in order to keep pace at least to an extent with last year's scrap price rises, but the persistence of lower alloy offers from producers prioritising the shifting of volumes has dragged on those efforts.
Alloy prices have also been mostly steady in 2024 so far, sustaining the enormous pressure on alloy producer profit margins. The Argus weekly assessment for DIN 226 alloy delivered to consumer works is at €2,200-2,230/t, from €2,170-2,220/t at the start of the year.
But scrap prices have proved far more mobile under pressure, and that pressure will increase in the coming months as demand for alloys recovers further.
"Demand for alloys is OK now, but prices are still very low," a second alloy producer said. "There isn't much scrap available, which will become a huge problem if alloy demand goes higher."
