I sincerely hope 2024 has been treating you well thus far. The major theme for aluminum scrap right now is tight supply. January is traditionally a slower month for many reasons and 2024 is no exception. On the industrial generation side, volumes are typically a bit muted as inventory was purged for year end the month prior and ramp ups from holiday outages are slow to refill the pipeline. On the peddler side, weather usually plays a major role in slowing things down. In case you haven’t noticed, January was an absolutely brutal month weather-wise for the entire US. Snow storms, ice storms, and near-zero temperatures significantly impacted both streams of scrap supply last month and the consensus for most out there is that the cupboards are pretty bare.
On the consumer end, demand is holding in fairly decent and aside from can sheet (which has enjoyed a noticeable uptick), there haven’t been any massive needs. That said, the tightness in supply is starting to be felt and as sporadic needs arise, spreads are creeping in for nearly all commodities. Overarching demand moving forward will be tied to the Fed’s actions with interest rates. Around the end of the year there was speculation of early 2024 interest rate cuts but as time goes on those are looking less likely. Inflation is taming but still above target and the economy/labor market isn’t showing any real signs of stress so I feel the Fed will keep rate cuts in their back pocket until they need to use them or inflation is undoubtedly below target. My guess, we’re looking at early summer before we see any real uptick in demand across the board whether it be driven from rate cuts or optimism from the upcoming presidential election.
There have been a few splashy market headlines the last 30 days. The New Madrid Smelter in Missouri announced it was curtailing all primary aluminum production at the end of January. While this closure will reduce North American primary supply to its lowest levels in 60 years, the net balance globally still shows a net surplus that will grow 700 million metric tons from last year. The LME jumped late January as the European Union considered sanctions on Russian metal but it’s since been confirmed that there will be no additional sanctions. Truth be told, the impact of any sanctions would have been minimal anyway as most of Russia’s metal goes to China. Since the Ukraine invasion, China has been the predominant outlet for Russian aluminum. China imports ~1.5 million metric tons of primary grade products and the percentage of that supply from Russia has grown from 18% in 2021 to 76% this past year.
Heading into February it is my belief that LME and the Midwest premium are going to remain relatively range bound unless there is some massive headline (read: geopolitical fallout) to move the needle. We’re likely to continue in the 2100-2350 LME range and there might be a very minimal amount of upside in the premium. So with markets anticipated to be relatively flat, scrap pricing fluctuations will be primarily driven from physical supply/demand ebbs and flows.
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