European aluminium scrap prices have risen through the final two months of this year, as Chinese demand for aluminium alloys boosted the market, but some alloy producers have warned that the market should be wary of the tightness of scrap metal supply going into 2020.
The casting alloys market has experienced a major change in the fourth quarter of 2019, as China's decision to move forward with the licensed quota system from 1 July slashed the amount of scrap being imported into China, starving its domestic casting alloys industry of feedstock.
Since the further import restriction of aluminium scrap in 1 July, the scrap metal that was making its way to China suddenly needed a new home, and Europe was it in many cases. Scrap supply spiked on all the new units coming into the market, and prices fell sharply since July.
The Argus assessment for taint/tabor 2pc delivered to European smelters reached a 2019 low of €700-750/t on 11 October, down from €910-970/t on 5 July. Tense 2pc delivered to European smelters fell to €730-800/t from €930-980/t over the same period.
Ultimately, China plans to implement a policy in which high-purity scrap metal will be re-categorised as raw material, allowing for unlimited imports of scrap metal that meet the stringent new specifications regarding size and impurity content. But that policy is now not expected to go into effect until the second quarter of 2020 at the earliest, after China delayed the rollout of its scrap metal reclassification policy until March next year.
Scrap prices started to recover in mid-November after China began buying European casting alloy units to replace the domestically produced units that it could no longer manufacture because of the scrap shortage. But no alloy producers in Europe reported difficulties sourcing scrap at that time, saying instead that the market remained very well supplied by material that would have previously been sold to China.
But in the second half of December, European alloy producers have reported some tightness in the scrap market, as other regions look to take advantage of China's thirst for casting alloys and make competing bids for the feedstock.
"Suddenly, there's not much scrap available now, and you see a lot of trading firms selling into Malaysia or Vietnam, where they will produce ingot to sell into China," one European alloy producer said.
Taint/tabor was last assessed at €820-870/t on 20 December, with tense scrap also standing at €820-870/t.
Should that tightness continue, scrap prices will no doubt rise further in 2020. Alloy producers will hope that the Chinese demand continues to push prices higher, but should they plateau in the first quarter of 2020, prices could rise further on their own fundamental tightness and pressure alloy producers' margins.
"Scrap demand is rising — we have no difficulty selling what we have," a scrap merchant said. "Chinese demand for alloys is more stable now, and European smelters are still looking for more raw material."
By Jethro Wookey
