Aluminum scrap continues to enjoy strong demand as of mid-February, with one trader who’s based in the Midwest saying primary mills are actively buying on the spot market. He says that is different than in the recent past, when these mills purchased much of their scrap based on contracts.
He attributes the increased spot buying in part to primary mills determining that the spreads in recent years did not make it advantageous to engage in contracts. “Demand is pretty strong as well,” he adds.
The trader says even secondary mills are offering more for aluminum scrap. “That tells me housing starts and automotive are strong,” he says.
One potential concern for aluminum producers and the scrap dealers who supply them is the automotive production problems that have arisen because of the semiconductor shortage. In 2020, the automotive industry experienced fluctuations in production and demand related to the pandemic, reducing its demand for semiconductors, while demand from other sectors increased. Semiconductor manufacturers now have capacity constraints that have been exacerbated by the quick recovery in car sales and production, which the automakers did not foresee. The shortage of semiconductors has led automakers to shut down plants temporarily or reduce vehicle production. For instance, Ford has reduced production of its popular F-150 by temporarily cutting the number of shifts at its Dearborn, Michigan, and its Kansas City, Missouri, plants.
However, one aluminum scrap consumer tells Fastmarkets AMM, “The chip impact is affecting domestic demand, but I do not think it will completely translate to the scrap market. I do think the auto demand will affect domestic twitch consumption, but we’ll see if export comes back stronger after the Chinese New Year,” which runs from Feb. 11 to Feb. 17.
The trader based in the Midwest also mentions GM’s recent announcement that it plans to introduce 30 new electric vehicles globally over the course of the next five years. This move potentially could benefit aluminum sheet producers, though it might harm secondary aluminum producers as drivetrain castings are reduced.
While delivery appointments are readily available with some aluminum scrap consumers, the trader says orders are 30 to 45 days out with copper consumers. SDI LaFarga, the only domestic consumer of No. 2 copper, is supplied through April, he adds.
“Delivery dates are being pushed out as consumers are balancing inventory levels,” says Brian Shine, president of copper scrap processing company Manitoba Corp., Lancaster, New York.
“The Comex pricing is excellent, which is keeping copper flowing,” he adds.
As of Feb. 12, the Comex copper price was at $3.80 per pound. That is an increase of 23 cents per pound from the Jan. 29 price of $3.57.
The trader in the Midwest says spreads have not widened relative to Comex for No. 1 copper and bare bright, which tells him there is ample demand. “There is strong demand on the primary side, and that will continue to be strong.”
However, No. 2 copper spreads are widening because of the lack of domestic consumption. He says spreads for this and other secondary grades likely will continue to widen as the year progresses.
Shine describes copper demand as being “pretty weak so far” for the first quarter of the year, but adds, “I believe it will improve as the year moves along.”
Export buying is quiet in light of challenges associated with obtaining containers, the Lunar New Year celebrations and the high quality requirements, he adds.
Despite “weak and flat” short-term demand, Shine says, “I am bullish on Comex copper pricing as there are many positive indications of demand for copper as the year moves along.”