European Al alloy, scrap prices need auto intervention

European aluminium alloy and scrap raw material prices have fallen rapidly over the last two months and may not turn around until the automotive market has resolved a slate of issues that are keeping it short of full production capacity.

The Argus assessment for DIN 226 alloy delivered to consumer works in Europe has fallen by 17.67pc to €2,350-2,450/t ($2,452-2,557/t) since 24 March, pressured downwards by macroeconomic headwinds that have seen London Metal Exchange (LME) aluminium prices also fall sharply.

The LME three-month aluminium contract has lost more than a quarter of its value since 24 March and settled at $2,722.50/t on 13 May as global markets have faltered alongside rising inflation, the continuing impacts of the Russia-Ukraine war, and the slowdown of the Chinese economy during severe lockdown restrictions as part of its zero-Covid policy.

Aluminium scrap prices, particularly the purer grades, correlate to LME prices and have fallen back alongside them. European aluminium wheels scrap prices have fallen by 18pc since 24 March, settling at €2,350-2,400/t this week. Lower export demand has also pressured scrap prices down.

But the most important factor for the European aluminium alloy market has always been the automotive industry, where semiconductor shortages — a feature of many electronics-using industries since the early stages of the pandemic — has been joined by a shortage of wire system parts previously manufactured in Ukraine.

European auto industry association ACEA said late last year that it expects the global chip shortage to cause carmakers in Europe to miss their own production forecasts in 2022. The market's performance so far this year has supported that view, reinforced by the shortages of Ukrainian wire system parts.

New passenger car registrations in the EU fell 20.5pc on the year in March to 844,187 units, as a result of supply disruptions. In the four key markets, Spain produced 30.2pc fewer cars in March, Italian output fell 29.7pc, France's production dropped 19.5pc and Germany recorded a 17.5pc fall. The UK's new car market fell 15.8pc on the year in April.

Alloy producers have been chasing sales in recent weeks ahead of further price falls. Any recovery is unlikely so long as automakers' supply chain issues persist. Some producers in the south of Europe have seen an influx of enquiries from Chinese buyers in the past two weeks, as parts of the Chinese economy recover from lockdown restrictions. But this is not enough to arrest falling prices and prices for DIN 226 equivalent ADC12 alloy in China are also falling, down 17.73pc from 24 March.

"We hope this Asian demand will last but we won't see prices turn around until the car industry gets comfortable," one alloy producer said. "There are a lot of supply issues on the table that are stopping the car industry from producing at the rate at which they could."

Some car producers are less affected by the supply chain shortages than others, as not all major producers in Europe have relied on Ukrainian parts. But the issues are broad enough that prices are not being held up by those less impacted. German carmaker Volkswagen recently submitted its initial aluminium alloy tender volumes for the third quarter to prospective suppliers and volumes requested were down by around 5pc on the year, according to market participants. This surprised some observers who had expected a greater decrease.

But the prices have yet to be settled and will likely continue to fall until the automotive industry recovers from its supply chain issues more broadly across Europe.

Jethro Wookey