Aluminum demand makes for a seller's market

In the aluminum scrap sector, contacts report that it’s a seller’s market as generation remains somewhat lighter than normal, though demand has picked up. In the red metals sector, however, sources said demand was somewhat more tepid as 2020 drew to its end.

Aluminum on the rise

“Consumers want to ensure a steady flow of material heading into 2021,” says Chad Kripke, executive vice president of Kripke Enterprises Inc., Toledo, Ohio. The company is a nonferrous scrap brokerage firm that specializes mainly in aluminum. “There is a larger than normal mix of sellers who decided to weigh heavier on the spot market versus contract business for 2021,” he adds. “Scrap processors are feeling confident that 2021 will be the year to regain some leverage. With spreads remaining tight, it is still a seller’s market for the foreseeable future.”

He adds, “It remains to be seen whether these higher prices and tight spreads will be here to stay, but in the meantime, scrap dealers are certainly enjoying it.”

A trader for a multilocation scrap processing and brokerage company headquartered in the Midwest shares Kripke’s enthusiasm for the year ahead. “If we can keep manufacturing humming through COVID, you can argue that demand for scrap will be really strong [in 2021]. That argument carries a lot of weight right now.”

A contact with a scrap brokerage and trading company with operations primarily on the West Coast also mentions the shift to a seller’s market, noting that that also is the case with export. “Reduced flows of scrap have caused spreads to tighten across the board.” He adds that he expects that to be the case for a few years.

The Midwest-based trader says aluminum scrap is in high demand at secondary smelters that supply the automotive industry. He adds that these consumers have been competitive on mill-grade aluminum scrap, as well. Rolling mills also are demanding aluminum scrap. “Even segs have gotten hot again,” he says, referring to segregated low-copper clips.

According to surveyed pricing data from Fastmarkets AMM, segregated low-copper clips were selling for a U.S. monthly average price of 42 cents per pound in the December 2020 buying period, up from nearly 30 cents per pound in the November buying period.

The Midwest-based trader mentions anxiety among some secondary producers who fear that scrap may not be available should they pass on material if they think the price is too high. Purchasers of mill-grade scrap are a little less concerned about that, he adds.

“Demand for extrusion and common alloys is very strong, and spreads remain very tight,” Kripke says. “Prices also are rising sharply for secondary grades.”

Scheduling deliveries also has become easier. “Delivery windows are relatively wide open,” Kripke says. “In the worst case, a dealer would be waiting 30 days for a delivery appointment.”

Red metals less robust

Red metals demand is not as robust as that for aluminum, the Midwest-based trader says. Export demand for red metals also has been weaker. “Domestic consumers have been able to buy at whatever spread they think is right,” he adds.

Some red metals consumers have been out of the market for the last couple of months, the trader says, and another consumer has announced that it will be out of the market in February. Despite that, he adds, “We’re able to see what we need to.”

Since China began accepting “furnace-ready” nonferrous scrap shipments Nov. 1, the Midwest-based trader says he’s been watching to see how customs clearance is progressing, adding that he’s not sure how closely inspectors will adhere to the published specifications. His company is not quite ready to begin shipping material there until it has more clarity in this area. High-grade copper chops and No. 1 copper should have no problem entering the country, the trader says, but he’s less sure about No. 2 copper, honey and, on the aluminum side, zorba. “We are looking for more concrete information and feedback.”

The West Coast-based source says that some suppliers are “taking greater risks with China.” He adds, “We are very early in seeing what effect China will have longer term on pulling units away from other consumers that have not had to contend with China over the last few years.”

He adds that if No. 2 copper shipments are cleared to enter China, “I suspect that there will be a lot more of that going there than there is now.”

The Midwest-based trader says domestic buyers of red metal scrap could find it more difficult to secure the material they need at a price they like going forward. He adds that spread for red metals could narrow if Chinese purchases increase, saying that in the past they have been “willing to pay whatever price it takes” to secure scrap. “Demand could get really strong for high grades of copper going into China. I would be more [bullish] on that than on demand weakening and spreads widening.”

Bernard Schilberg, CEO of Prime Materials Recovery Inc. (PMR), an East Hartford, Connecticut-based processor and broker of nonferrous metals, says he does not expect to see an increase in the higher grades of copper scrap leaving the U.S. for China. “For copper, I would always say high grade is predominantly in a deficit position.”

Rather, he says he believes exports of smelter and refinery grades from the U.S. to China will increase.

Generation remains lighter

While nonferrous scrap generation has been increasing since the summer, it is not quite back to pre-pandemic levels as of mid-December 2020. The Midwest-based trader says industrial flows are at 90 percent.

Kripke describes obsolete generation as “spotty,” though he adds that it appears to be increasing. “It is difficult to determine what is coming out of the woodwork due to the rise in the market versus what would have otherwise been available had prices stayed stagnant.”

Schilberg describes generation as being “fairly brisk.” Copper accounts for roughly 80 percent of the scrap the company handles, while aluminum makes up roughly 15 percent.

He adds that about 70 percent of the scrap PMR handles is generated by industrial accounts, though one of its divisions handles a considerable volume of demolition material. Schilberg says generation from the demolition sector is light, adding that the company has had containers in the field for a couple of months that have not required servicing. He says the pandemic-related protocols that contractors must comply with make it difficult to proceed with projects.

Transportation woes

Securing trucking to move scrap is an ongoing issue, the Midwest-based trader says. Prices also have increased, with the trader saying they are up by 33 percent on average.

Kripke also notes the considerable rise in freight costs. “Although we are still able to get loads moved, we have sometimes had to pay 50 to 75 percent more than we would have historically paid for certain lanes.”

He adds that this has made domestic shipments more difficult, as it could cost as much as $2,000 to ship within the central U.S. “Conversely, it may only cost $1,200 to $1,600 to load a container and ship it to Europe or Asia from any major ramp or port,” Kripke says.

The contact on the West Coast says trying to get containers out of the ports has become increasingly difficult. “It puts pressure on inventory turns, thus increasing financing costs.”

Schilberg also mentions issues at ports, noting bookings having to be turned in as few as 36 hours compared with four or five days historically.

For demolition contractors, trucking delays could affect how quickly scrap processors are able to service accounts. But, on the pricing side, it seems as if much of the aluminum and red metal scrap generated at job sites will have a higher value now than it did at the start of the year.

This article originally appeared in the Jan. Feb. issue of Construction & Demolition Recycling. The author is the editor of Recycling Today, a sister publication of Construction & Demolition Recycling. She can be reached at dtoto@gie.net.