Europe Al alloy market finds relief in China demand

European aluminium scrap prices have plunged in recent weeks on heavy oversupply and low demand, as China's caps on scrap imports push more volume into a European market where demand from the mainstay automotive industry has shown marked weakness this year.

But some relief for beleaguered scrap sellers could be set to emerge in the form of more Chinese import demand — not for the scrap units denied under government policy, but for the aluminium alloy ingots produced from those units.

"In China, the lack of scrap has led to a lack of alloy ingots," one alloy producer said. "We're now exporting to China at better prices and finding alternatives to the depressed European market."

China has long been one of the world's biggest scrap metal buyers, importing 2.2mn t of aluminium scrap in 2017. But its environmental ministry began implementing stricter scrap regulations towards the end of that year, limiting imports first with impurity thresholds of 0.5pc and 1pc for ferrous and non-ferrous scrap, respectively, in an official notification to the World Trade Organisation in November 2017.

The country's aluminium scrap imports dropped sharply as a result, falling by 26.7pc on the year to just 1.6mn t in 2018.

This year, China has shifted category 6 scrap items including copper, aluminium and ferrous scrap into a restricted category, regulated with import licences and requiring quotas. The first series of quotas allowed for 372,476t of aluminium scrap imports in the third quarter. The country imported 349,510t in the third quarter of 2018.

But the fourth-quarter quota is for just 32,940t of aluminium scrap imports, and China's longer-term intention is to eliminate scrap imports.

For ferrous material, China's third-quarter quotas totalled just 20,918t, and the latest fourth-quarter quota was for just 1,770t. The campaign to eliminate scrap imports is more advanced for ferrous materials, and China's imports of steel scrap fell to zero for the first time this century in August.

The net result of this policy action is that much of the scrap that had been making its way to China from, chiefly, the US is now being routed to Europe, spiking scrap availability in that market and pushing prices down sharply.

Argus' assessed price for taint-tabor aluminium scrap today stands at €700-750/t, down from €950-980/t at the start of September. Tense scrap has fallen to €730-800/t from €930-970/t over the same period.

Soft demand for aluminium alloy in Europe is exacerbating the downward scrap price movement, with notably lower demand from automotive manufacturers this year as new emissions regulations and global trade tensions impede new vehicle deliveries.

"Scrap has been falling for a few weeks and there doesn't seem to be a bottom," a second alloy producer said.

But China may well provide the relief that the market seeks as it is now looking abroad not for aluminium scrap units, but for aluminium alloy ingots.

"China can't get hold of the scrap, so the solution is to buy the ingots," a third alloy producer said.

Although the prices that Chinese traders are offering are not yet strong enough to entice UK sellers, there are some European suppliers that have already sent shipments east.

"We now have a chance to have a strategy that could offset the European depression," the first producer said. "There is tremendous demand in China, and we expect a reaction in pricing."

Chinese traders are becoming more active in this space, and if that continues European alloy producers will have another source of demand for products, increasing sales and subsequently prices for aluminium alloy and scrap.

"It depends on prices and a lot of other things, but this could be the boost that this market requires," a fourth producer said.