We are on the back nine of summer with county fairs in full swing and football starting to ramp up. In no time at all, we will be in Chicago at the ReMA Roundtables discussing business opportunities for 2025 and beyond. With what has transpired in the scrap world over the past 12 months, I have a feeling the tone and discussions of the upcoming conference will be different than in years past.
Over the past few months I’ve highlighted how tight the aluminum scrap market has been as well as the driving forces behind the change. Demand for domestically produced, low carbon metal is only going to intensify over the coming years as new players/plants enter into the US marketplace (Spectro, Aluminum Dynamics, Novelis, and Hydro just to name a few). As if that weren’t enough, the rest of the world is increasing aluminum scrap recycling capacity as well, with China being a major player. Over the next couple years, China is single-handedly putting in 2.3X more scrap based capacity expansions than the rest of the entire WORLD combined. And in preparation for feeding these facilities, China’s ministry of ecology and environment began relaxing scrap restrictions in July for aluminum products which have been in place since their green fence initiative. To put the size and scope of these new recycling assets into perspective, come 2027 if all the announced projects come to fruition, China will be looking to import an additional ~20 billion pounds of aluminum scrap annually. That equates to more than 1,200 containers of scrap daily at the same time that every other region of the world is increasing their demand for aluminum scrap.
This global growth coupled with the scrap scarcity being felt currently, will shift the discussions for scrap supply in a several ways. The days of agreeing to a price/discount/formula for the year and walking away are dying quickly if not already dead. Partnerships and long term strategic supply agreements are the new norm as domestic mills look to shore up supply in the coming years. More and more aluminum scrap will become closed loop (from generator to mill) and many of the lower grade obsolete items will find new processing paths aimed at upcycling the material into it’s highest form/grade. We might even see a page from the ferrous industry playbook where consumers look to solidify supply by acquiring scrap companies. Annual deals that are done will have much shorter pricing windows and/or various pricing mechanisms that are tied to indexes given the variability and unpredictability in pricing as the market adjusts to the new demands. To say there has been some substantial pain felt associated with 2024 annual deals would be an understatement. No one is looking to repeat that.
As for current aluminum pricing, the spreads or percentages of MWT for many grades remain at or near 6-year highs as demand outpaces supply. Things have cooled marginally in the common alloy space as MLC, painted siding, and 1100/3003/5052 hit 6-year highs (as a % of MWT) in April/May and have widened out a bit since. Can sheet raw materials like class scrap and UBC continue to escalate hitting high watermarks in July, although we may be starting to see some leveling off. Inputs for the billet market remain fairly constrained but recent pullbacks in segments like automotive demand have prevented spreads from ratcheting tighter. Despite these pressures, actual prices for all aluminum scrap items have fallen as the LME market saw a ~15c swing in pricing last month. Midwest transaction started July at $1.32 and hit $1.17 late in the month before bouncing back a little bit. This precipitous fall is thanks to a supply/demand imbalance in primary aluminum as well as the investment firms unwinding their long positions in metals. Global primary production in the 1st half of 2024 was 3.9% higher than 2023 mainly because production in China increased as capacity from the hydro-rich Yunnan province came back online with much improved rainfalls.. That increase in production coupled with global inflation and concerns about China’s economic health pressured LME prices. I am hopeful that the bottom of this market was found at $2200/ton and beliefs are that we will see stronger prices the balance of the year as interest rates stop increasing or even start to decline. Thank you or taking the time to read. If you have any questions, comments, or feedback, I can be reached at 440-813-6325 or michael.anderson@schupan.com.
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