Another month in the books and closing in on the end of Q1, but the main narrative in the aluminum space remains unchanged with scrap scarcity reigning supreme. What was mostly isolated to a few segments as of last writing is being felt across nearly all areas of the aluminum scrap market today. Spec ingot makers, secondaries, billet makers, and flat rolled product consumers alike are finding scrap availability challenging. The million-dollar question is why?
One can point at a host of various reasons including seasonality, high interest rates, or winter storms (although this one’s becoming less defendable with the warm winter - aside from essentially one week). In reality, it’s likely a little bit of all of these that’s led to where we are. In the face of increasing costs of capital, and accustomed to the ability to find prompt material in the market, many consumers started 2024 with extremely low levels of inventory. Fears of an economic meltdown also helped drive historically empty pipelines. But as the new year progressed, economic and consumer collapse concerns have waned and there is light at the end of the interest rate tunnel – offering some stability and certainty to the markets. This triggered consumers to restock their finished goods inventories to not miss out on limited sales opportunities, right when scrap availability is at its tightest. Throw in some increased demand from export consumers, one massive January winter storm, and here we are. I do think it will take the better part of March for things to settle down but also sense that normalization is around the corner.
News broke in February about delays and issues with the two new fully integrated flat rolled product mills that were set to come online early 2025. Aluminum Dynamics now appears set to be later 2025 while Novelis’ new facility in Alabama has been pushed to late 2026. Both facilities were victims of inflation as well, with costs ballooning by 64% for Novelis ($4.1B from $2.5B) and 23% for ADI. On the global front, following the death of Putin critic, Alexei Navalny, the US and European Union responded with a whole host of additional Russian sanctions. While there was some mild speculation that aluminum might be included in the sweeping sanctions, it was ultimately omitted. The UK did target Russian aluminum and copper but aluminum imports into the UK in 2023 totaled…… wait for it……. 2 containers. So there isn’t anything here moving the needle.
February hasn’t been a great month for pricing. The LME dropped $70/ton since the end of January and the premium slipped 1.5c as well. Despite those losses, physical tightness drove spreads tighter and many grades of scrap are being priced higher now than they were at the beginning of the month in higher terminal markets. I foresee continued range bound oscillating in the LME while I do think the premium could gain some ground heading into summer.
I would love to hear your questions, feedback, or thoughts. Feel free to reach out to me at 440-813-6325 or michael.anderson@schupan.com.
