Tightness in aluminum likely to continue

The aluminum scrap market continues to be characterized by tightness, particularly within the U.S., which is likely to continue into next year, according to sources.

“If you go back toward the end of last year, it was very different,” says Rick Dobkin, chief commercial officer at Shapiro Metals, headquartered in St. Louis. (For a profile of the company, click here.) “There was plenty of metal out there, and then there wasn’t as much interest.”

Now, however, a number of new aluminum scrap-consuming facilities are coming online, a scenario Dobkin says likely will keep scrap tight. “Scrap is going to be in short supply for quite a while until we can get our arms around better supply, whether that’s improving UBC [used beverage can] recycling rates from kind of the dreadful spot where they are now or working with sortation technology to be able to sort the metal better so it either doesn’t end up getting downcycled or getting exported,” he adds.

“If you go back toward the end of last year, it was very different. There was plenty of metal out there, and then there wasn’t as much interest.” – Rick Dobkin, chief commercial officer, Shapiro Metals, says of recovered aluminum

While Dobkin says the companies starting up this new melting capacity are smart and surely have a plan, he adds, “I don’t think things are going to improve as far as availability. I think we’re going to be in a tight market for quite a while.”

Andy McKee, president of Schupan Materials Trading at Kalamazoo, Michigan-based Schupan & Sons, says, “It was a long winter for aluminum between terminal markets, weather and slowed manufacturing. Fortunately, it looks like we have made it through.”

He’s “cautiously optimistic” about the coming months, noting that the London Metal Exchange (LME) aluminum price was more than $2,700 per metric ton as of late May and flows of materials have picked up, though weaker manufacturing is affecting scrap generation.

As of late May, McKee says spreads are healthy and mills were interested in scrap, “But there are things to be concerned about; why is the LME up?” he adds. “Is it truly demand or driven by financial trading interests? If it’s the latter, that could mean fragility.”

The first week of June saw the aluminum price soften along with pricing for base metals generally. As of June 7, the official LME aluminum closing price for the three-month contract was $2,578.

“The fiery copper rally lifted the rest of the metals, with prices hitting one-to-two-year highs in the other five complexes at around the same time as copper peaked,” writes Edward Meir in his “Monthly Market Commentary” for Marex dated June 8. Most of the gains made in the week starting May 20 were rolled back over the next two weeks, he adds, with copper and aluminum each losing 2.8 percent over the week of June 3.

“Despite the post-May 20th sell-off, all six base metals are roughly at or just slightly below where they were at the start of May, and so the correction arguably has yet to run its full course,” Meir says.