The aluminum scrap market has been struggling with oversupply for some time, though difficult winter weather in various parts of the United States in February helped to bring some relief, sources say. Some of these sources add that they expect supply and demand to normalize as the year progresses.
The export market has helped somewhat, providing demand and stronger pricing for zorba. However, demand for traditional secondary grades, such as painted siding and aluminum extrusions, appears to be largely on a spot basis off the West Coast, a source with a wholesale processor in that region says. He adds that export pricing for this material is “not wonderful.”
Shifting export markets
When it comes to the zorba being generated by auto shredding plants in the U.S., a source with a processor that operates a number of yards based primarily in the Midwest says U.S. and export pricing is disconnected. “The export price is much stronger and has been trending upward for the last few months,” he says. “The domestic market is stagnant or not buying much if any.”
China’s zorba buying and its aluminum scrap buying from the U.S. in general decreased over the last year largely because of the 50 percent tariff the country levied on U.S. aluminum scrap imports in April 2018.
The effect of the tariff can be seen in overall aluminum scrap imports from the U.S. to China. In November of 2017, China imported 75,400 metric tons of aluminum scrap, according to the United States Geological Survey (USGS), and a total of 745,000 metric tons for the year through November. By November of 2018, the most recent month for which figures were available at press time, U.S. exports of aluminum scrap to China fell to 38,300 metric tons. The year-to-date figure through November was 462,000 metric tons, according to the USGS.
However, according to trade data reported by the Institute of Scrap Recycling Industries (ISRI), Washington, other markets more than made up for the drop-off in Chinese demand. Total U.S. aluminum scrap exports rose 12 percent last year to 1.76 million metric tons, ISRI notes, with increases in shipments to Vietnam (672 percent), India (174 percent), Malaysia (228 percent), Indonesia (104.5 percent) and Taiwan (129.5 percent) helping to more than make up for the decline in Chinese buying.
Outside of Southeast Asia, Brazil increased imports of U.S. aluminum scrap by nearly 2,130 percent, ISRI notes. That country went from importing 293 metric tons of this material in 2017 to 18,260 metric tons in 2018, according to data from the U.S. Census Bureau and U.S. International Trade Commission.
The Midwest-based processor says his company has been shipping its zorba to India and various Asian countries. “India has been a much bigger buyer of zorba in particular over the last six to eight months,” he adds.
Additionally, the company has been exporting certain secondary and mill-grade scrap that it normally would sell domestically, though he declined to provide additional details on the specific grades.
The source based on the West Coast says other traditional overseas destinations for aluminum scrap also have been soft. South Korean markets for aluminum scrap have “eroded,” he says, while Japan is purchasing material, though only on a spot basis.
Aligning domestic supply and demand
Chad Kripke, vice president, risk management region, for the aluminum trading firm Kripke Enterprises Inc., Toledo, Ohio, mentions the harsh weather that hit the Midwest in February, adding that it slowed the flow of material into yards.
The processor based in that region also mentions the frigid temperatures the Midwest experienced in February and their effect on production in that region. “February was a terribly hard month for most of the Midwest because of the weather.”
He adds that peddler traffic decreased a “decent amount,” reducing the amount of scrap available. “There’s not as much of a glut.”
He continues, “A lot of the consumers have metal bought. On paper, their needs are filled. But everyone’s generation is a lot less than they have anticipated, so I think we are working through that glut. And some consumers are having to go out on the spot market and having to pay higher prices just to get prompt metal in because the material they bought just isn’t showing up—more so on the mill side than on the secondary side. But, in general, scrap is much tighter than it was.”
The West Coast source says buyers of aluminum scrap in his region are not purchasing the segregated alloys that they normally would, with one consumer saying it is bought out through mid-April.
“The market is fickle. That is the best way to explain it,” he adds.
Kripke says operational issues at some consuming facilities created a bottleneck in the market that pent up supply and widened spreads. However, he says he sees things starting to normalize, with a clearer picture likely to emerge in the second or third quarter.
“The industrial flow of segregated alloys is still pretty strong,” Kripke says.
However, he sees a considerable issue with the oversupply of automotive stamping scrap available on the market, adding that the impact this situation is having on the market can’t be stressed enough. “It’s like drinking through a fire hose,” Kripke says.
Kripke says the aluminum content in vehicles is increasing with every model year, but there is no place to consume these high volumes once they enter the scrap stream.
“A lot of this mixed alloy 5000, 6000 auto sheet has found its way into the MLC (mixed low-copper clips) stream,” he says. “If you’re a sheet mill, for example, and trying to make 3105 or 3004, alloys with lower silicon and magnesium and high manganese, and you put this stamping scrap in there that has 1 to 1.5 percent silicon or 5 percent magnesium in it, you can only blend off so much of that,” Kripke says. “You can’t make vanilla cake with chocolate cake batter.”
Greg Wittbecker, a Pittsburgh-based aluminum industry analyst with CRU Group, mentioned this issue in a December 2018 webinar hosted by the Aluminum Recyclers Council (ARC), Wauconda, Illinois. “When you get into the automotive segment, that’s where you see some constraints in people being able to absorb this tremendous increase in automotive-related scrap,” Wittbecker said. “The difficulty that is involved with the automotive alloys is that some of these alloys are more or less scrap friendly, so to speak. In other words, different mills have higher or lower capabilities of absorbing these scraps when they come back from different OEMs (original equipment manufacturers).”
The processor based in the Midwest says whatever aluminum scrap his company buys, it’s able to sell, shipping most orders within 30 days. “The mill side is harder; the secondary side is easier.” He says some extruders and mills are further out with their delivery dates, but “not so far out that we would stop buying.”
Kripke and the Midwest-based processor mention the historically wide spreads on secondary scrap grades relative to London Metal Exchange (LME) prices. “There is a lot of pressure on ingot prices at secondary smelters,” Kripke says, adding that spreads have widened between 5 and 10 percent in the last year.
The processor based in the Midwest says we’ll see more of the same as the year progresses. “Some items will be tough to sell that are tough to sell now,” he says, but he doesn’t foresee a further degrading of the market. Instead, he says, “Talk of a glut will go away,” and conditions will normalize.
Kripke says once the domestic market gets over its “hangover” from 2018, as long as the economy and factory production remain strong, “the market will normalize, and you’ll start to see more competition for some of these [grades].”
Kripke adds, “The good news is that demand for aluminum products is growing.”