European Al scrap buyers face difficult times

The European aluminium alloy market has enjoyed some relief as demand and prices improved markedly this month. But the market remains in a precarious position as scrap raw material supply is becoming ever more tenuous.

European aluminium scrap prices have risen in recent weeks as demand has returned to a market tightened by the lack of fresh scrap generation over months of Covid-19 lockdown restrictions. Scrap usage also fell but the decrease was not to the same degree, as manufacturers tried to maintain operations using raw material stocks through the initial phases of the pandemic.

Scrap supply was also reduced in the spring lockdown period as business could no longer be safely conducted.

"There was no fresh generation of scrap for three to four months, but people continued to sell, export and use scrap material in that time," one alloy producer said.

Demand for alloy and scrap raw material has returned now manufacturing operations are recovering from lockdown restrictions across Europe, particularly from the crucial automotive industry, which has posted improved numbers in recent months.

The UK car sector rebounded in July with registrations growing by 11.3pc year on year to 174,885 as pent-up demand and special offers incentivised consumers to purchase. Car sales across Europe jumped from June, although overall January-August sales were still down by a third on the year.

"Big customers of ours are saying they're going back to full production. Some are even saying they're hoping to hit their annual targets, and others are working extra shifts," a second alloy producer said.

But while that demand has translated into better alloy prices, it has also resulted in a need for fresh scrap, which remains in short supply following the lockdown restrictions.

The weekly Argus assessment for DIN 226 diecasting alloy delivered to consumer works in Europe reached €1,350-1,400/t ($1,576-1,643/t) last week, from lows of €1,200-1,280/t in mid July, while the assessment for UK LM 24 alloy delivered to consumer works reached £1,250-1,300/t ($1,592-1,655/t) from £1,000-1,100/t over the same period.

Rising prices may have provided relief for alloy producers but were accompanied by higher scrap prices. The Argus assessments for aluminium wheels delivered to consumers stands at €1,250-1,300/t in Europe, from €1,200-1,250/t in July, and at £970-1,020/t from £900-950/t in the UK over the same period.

Asian markets such as India have also increased buying.

But there is a lot of uncertainty over the robustness of higher demand. Automotive sales have dipped in the last month. The UK car sector slowed in August, with car registrations dropping by 5.8pc on the year, while declining car sales were also reported across Europe last month.

With both sources of auto appetite exhausted, fresh alloy demand in Europe may fall back over the rest of the year. But that might not result in any relief on scrap availability or prices.

Increased demand in China

An additional source for demand for aluminium alloy producers in recent months has been China, where confusion over its new scrap metal import policy has slashed scrap imports and led to a leap in aluminium alloy imports.

China was due to announce the new policy in July. It will ensure scrap metal that meets the appropriate specifications is classified as raw material and not waste, and is freed of import restrictions. China has been issuing scrap metal import quotas in the absence of any clarity over the new policy. It issued the 12th such tranche last week. But they are only applicable for deliveries in 2020.

Should China release the details of the new policy in the fourth quarter this year or early in 2021, it is likely to be a double blow for the European alloy industry. Scrap exports from Europe to China will increase, while alloy demand from Chinese buyers will fall back to its domestic market.

For their part, European scrap dealers are hopeful that the new policy will be cleared up soon, allowing large-scale exports to China once again.

Jethro Wookey