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Metal Recycling News September 30, 2016 11:30:07 AM

ISRI Roundtable: Global oversupply to set direction to aluminum scrap market

Paul Ploumis
ScrapMonster Author
The session on aluminum was moderated by Matt Kripke, president of Toledo, Ohio-based Kripke Enterprises.

ISRI Roundtable: Global oversupply to set direction to aluminum scrap market

SEATTLE (Scrap Monster): The nonferrous session at the Institute of Scrap Recycling Industries (ISRI) Commodities Roundtable 2016 noted that the short and near-term future of aluminum scrap market is completely dependent on the market oversupply situation. It noted that the global markets currently suffer from oversupply, mainly driven by China. The ISRI Commodities Roundtable was recently held in Chicago Sept. 19-21.

The session on aluminum was moderated by Matt Kripke, president of Toledo, Ohio-based Kripke Enterprises. In his opening address, Kripke noted that the aluminum scrap export market activity has declined significantly over the past few years. The aluminum scrap exports from the US to China have almost reduced to one-third over a span of five years. He noted that the country had exported 1.5 million metric tons of aluminum scrap to China during 2011. The scrap export volumes are estimated to total around half-a-million metric tons this year. It must be noted that the exports to China had reported 13% growth per year from 2007 to 2011. The key reason for the sharp drop in exports is the rapid rise in domestic scrap supply in China. The secondary scrap aluminum collection in China has more than doubled from 2.1 million metric tons in 2008 to 4.3 million metric tons in 2014. He also stated that Midwest Premium price has bounced back from the levels of 2015.

Mike Southwood, a senior consultant with the research and consulting group CRU Group highlighted the various issues impacting the global aluminum markets. According to Southwood, the recent split of Alcoa into two entities may have a significant impact on aluminum scrap markets, if the downstream business unit starts buying materials on the open market. In addition, he pointed out that the Brexit decision is likely to have modest impact in most of the European markets at least in the short term. However, the UK will suffer serious economic impacts due to the decision, he added.

Southwood stated that Chinese aluminum industry is likely to witness more consolidations through mergers and acquisitions. The Chinese companies have started showing interest in acquiring big assets across the globe. The recent announcement of takeover of Cleveland-based Aleris by the Chinese aluminum producer Zhongwang Holdings marks the beginning of such potential deals that are likely to happen in future. Although, various industry groups including the Aluminum Extruders Council and leaders of United Steelworkers have already expressed their concerns on the impact such takeovers could have on global aluminum markets, the deal is likely to go through.

Major Chinese firms are in a bid to expand their footprints in global market, to take advantage of the projected growth in automotive and aerospace industry. The decision to expand to overseas markets is also on account of declining domestic aluminum demand within China. As per forecasts by CRU, the Chinese aluminum demand is expected to decline from 6.1% during Q3 this year to 4.6% during the last quarter of 2016. CRU expects the demand from construction and industrial sectors to decline during the rest of the year.

Meantime, Larry Snyder of Illinois-based United Scrap maintained a cautious outlook for the metal and urged dealers to be cautious with their scrap trade. The shortage of aluminum scrap on account of anticipated bad weather conditions in the East and Midwest during winter may boost the demand for secondary aluminum, he said. Also, the falling ferrous scrap prices may impact the autoshredder activity, thereby leading to generation of lesser quantities of zorba, which in turn may result in reduced supply of aluminum in market, Snyder added.