Oversupply conditions linger for aluminum markets

The aluminum scrap sector continues to feel the effects of oversupply. However, a scrap broker based in the Midwest says the early arrival of winter weather in the first half of November helped to slow the flow of material into yards in that region, at least in the short term.

“There is still more scrap than demand,” he says, adding that that scenario remains “the big challenge” for aluminum scrap dealers.

Looking ahead to 2020, the broker says negotiations with aluminum scrap consumers have been challenging. He explains, “A number of consumers are forecasting that they won’t need as much scrap in 2020 due to forecasted orders.” Others, he adds, have been “very blunt,” saying that they want to participate more in the spot market to take advantage of lower scrap prices when they can.

“A number of [aluminum scrap] consumers are forecasting that they won’t need as much scrap in 2020 due to forecasted orders.” – a Midwestern broker

Selling segmented mill-grade common alloy scrap, such as 5052 and 6061, is particularly an issue, the broker says. These grades have not been exported traditionally; however, he adds that his company has been getting more inquiries from overseas consumers, particularly those in Europe, “because the spreads have gotten beyond the traditional spreads. An arbitrage is created, which leads to material flowing into and out of certain countries.”

The broker says, “We’ve always been stronger in North American sales, but if we used to do 1 percent outside of North America, maybe now we’re doing 1.5 or 2 percent. That’s not a massive increase, but it’s massive for us.”

Domestic demand for this mill-grade common alloy scrap has decreased in the last five to six years as primary mills in North America began increasing their automotive sheet capacity, he says. While mills are still rolling this material, they are using imported slabs to produce it, not melting scrap. Because of that, the same amount of aluminum coil is being used for manufacturing in North America, and the same amount of scrap is being produced, but the demand for this scrap is lower in the region, the broker says.

A scrap processor who also is based in the Midwest says that on the primary mill side, scrap supply continues to outpace demand, which has made spot sales all but disappear. “That’s not changing any time soon,” he adds.

While he’s also aware of mills’ hesitancy to enter into scrap supply contracts for 2020, he says they are going to want to lock in some supply.

The Midwest-based processor sees more of the same for domestic aluminum scrap markets in 2020. “Export could be the biggest opportunity,” he says, as countries in Southeast Asia continue to industrialize.

The outlook for copper scrap is not much brighter, the processor says. “Spreads have really widened on the No. 1 and bare bright side,” he says, adding that these scrap grades have been challenging to move.

“We are finding copper consumers are few and far between, but somehow [we] are still able to sell a few loads here and there on the spot market above and beyond contract business,” says a second scrap processor based in the Midwest. “Spreads are wide but haven’t seemed to widen more as we get closer to year-end.”

The first processor says he doesn’t expect an uptick in demand for December as mills try to reduce their inventories, but he is hopeful that copper scrap markets could improve in 2020 as a result of global demand.