Scrap Fears Obscure Al Alloy Price Picture

Fears of an aluminium (Al) scrap shortage grew among European aluminium alloy producers as they contemplated their own pricing levels ahead of the restart of some automotive operations this week.

Manufacturers including Volvo and Volkswagen announced a limited resumption of operations last week, and alloy producers have responded by planning returns of their own.

“We restarted some production on Monday, to deliver to the auto companies that have restarted,” a Germany-based alloy producer said. “We will have a clearer picture by mid-May. We do not yet know if we will be at 50pc capacity or 80pc or even 100pc.”

Most of Europe’s automotive plants remain closed, but further restarts will bring a swift response from alloy producers.

“We are waiting for our clients to restart — 95pc of them are in the automotive industry,” an eastern Europe-based producer said. “There is still no market at the moment, and no enquiries.”

But few alloy producers can say where prices will be when sales do pick up, given the precarious situation in the scrap market and the possibility of a large near-term shortfall of the raw material, even with demand for alloys at a low level.

“If I offer DIN226 alloy, the basis for the price calculation is scrap prices over the last three weeks, but there are no scrap prices now,” the Germany-based producer said. “We have some stock, but no deals. There is no basis for a price calculation.”

With so much manufacturing idled through the past month, there has been little production scrap coming back into circulation from those operations. Major European scrap suppliers stopped taking third-party deliveries last month, while the lack of automotive production will lead to less material from scrapping coming onto the market.

“Scrap is the biggest issue. The lockdowns have dramatically lowered the generation of new scrap,” an Italy-based alloy producer said. “No one is offering, and it is very hard to buy.”

One dealer confirmed he had no aluminium scrap to sell, and that he was instead focusing on his stainless steel business as he had no enquiries for aluminium material.

This will make for a murky aluminium alloys price picture if business picks back up. And demand levels remain unclear, as original equipment manufacturers that buy from alloy producers and sell to automotive manufacturers often carry ample stocks, so higher demand from automakers might not immediately translate into higher alloy demand.

Additionally, primary aluminium prices have fallen throughout the pandemic as producers continue to operate smelters against low demand and as investors become unnerved by the oil price collapse.

But if scrap supply cannot meet even reduced demand levels, alloy prices will have to rise.

“If ingot demand is half of what it was, but you have a quarter of the scrap supply, prices will go up,” the eastern European producer said.