Nonferrous scrap market overview

While trade volumes have recovered and industrial activity in most countries seems to have gained traction, issues relating to scrap metal trade policies continue to cause concern among stakeholders, say experts.


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Metal
 
July 23 2021
 
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While trade volumes in the recycling industry have recovered and industrial activity in most countries appears to be gaining traction, issues relating to proposed import/export policies for scrap metals remain, which are causing concern among stakeholders, said Dhawal Shah, Metco Marketing (IND) Pvt Ltd, President of the BIR nonferrous metals division.

In the Bureau of International Recycling (BIR) Nonferrous Quarterly Report released in July, he said, following on from China and Indonesia, Malaysia is proposing to implement a new set of guidelines for imports of all scrap metals. It would require a major overhaul of processes, documentary procedures and compliances in order to see business through, he noted. Similarly, the European Commission’s proposed Green Deal could potentially create a major stumbling block for the industry as it advocates restricting scrap exports in a bid to address climate change and protect raw materials for domestic industries, said Shah.  adding that the sector has arrived at “a very anxious and challenging moment”, especially considering the sector is already facing challenges including container logistics mayhem, price volatility and uncertainties over the spread of Covid. He hoped that the spirit of free and fair trade would be upheld. 

Also touching upon the Indian scenario, he said it has been a period of hits and misses for the country. Although Covid cases have come down, with only around 5 percent of the adult population fully vaccinated and some 25 percent partially vaccinated, the onslaught of a third wave is looming large, he said. The secondary metals sector in India has witnessed healthy activity levels over the last two months following improved demand from several traditional consumers, including automotive, construction and steelmaking, Shah commented, adding that with much of the migratory labour reporting back to scrap yards, the collection, sorting and processing of raw materials has increased significantly. The surge in demand for ADC12 ingots from Japan and China has allowed local smelters to scale up production and push for more sales. Similarly for lead and copper, he said India has been able to find consistent homes in the Far East and China for its refined qualities.

Shen Dong of OmniSource Corporation (USA) and Board Member of the BIR non-ferrous metals division said, effective from June 10, China’s General Administration of Customs has announced inspection enforcement on recycled raw material imports, including recycled steel, copper, brass and aluminium alloys. With Malaysia’s countrywide lockdown continuing into its second month and with tight import controls at Chinese ports, consumers in China are reporting tight supply of both secondary aluminium and copper units, he noted. “After the commodity trading index reached a 13-year high, China announced that it would auction batches of state reserves of copper, aluminium and zinc to domestic manufacturers and consumers for the purposes of cooling down the post-pandemic price surge.”

Data show that operating rates among China’s secondary aluminium smelters remain at lower levels, with an average of below 60 percent for May, which is down from the previous month but higher year on year. The semiconductor shortage is one of the contributors to this downward trend, said Dong. 

In the Middle East, Ibrahim Aboura, Aboura Metals (ARE), Board Member of the BIR non-ferrous metals division noted that 2021 is proving to be as difficult as last year, but in many different ways: solid demand and supply of non-ferrous scrap in the first quarter, coupled with historically high LME prices, were then followed by a slowdown in both demand and supply owing to many factors. Inflation fears were a leading factor for investors. There has also been government interference as, for example, China has looked to play a role in slowing the continuous rise of LME prices. There has also been an increase in exchange stocks, he said.

At present, the LME is at a steady level with not much volatility in evidence, especially on the copper side, whereas aluminium and lead are still achieving high levels with strong demand for both metals in recent weeks. In May, markets steadied and supply calmed in the Middle East, he added. High temperatures arrived early in the Gulf region, and this usually affects the supply side through a reduction in scrap collections and in outdoor operations, said Aboura.

Sidney Lazarus of Non-Ferrous Metal Works (ZAF) (Pty) Ltd and Board Member of BIR non-ferrous metals division said economic and business conditions are improving in South Africa. There is still a domestic shortage of suitable scrap and the prices being paid are very high. Export permits are still being issued for brass (Drink) and aluminium scrap, while the International Trade Administration Commission (ITAC) is continuing to send representatives to yards to verify export applications, he said. Scrap dealers are still melting copper, brass and aluminium into blocks, ingots and billets, thereby creating local shortages of suitable scrap metal. But as a result of the unrest in country, he said the South African rand is trading weaker at 14.50 to the US dollar.

From a Southeast Asia perspective, Darrell Wong, Liberty Iron & Metal, Inc. (USA), Board Member of the BIR non-ferrous metals division said Covid infections are continuing to surge in several major Southeast Asian countries and the spread of the Delta variant has pushed daily cases to record highs in Indonesia, Malaysia and Thailand over recent weeks. This has led to more stringent restrictions in Indonesia and Thailand, and to an extension of national lockdown restrictions in Malaysia. While there had been optimism that most of the region’s economies would rebound during the second half of 2021, these renewed virus surges and continued restrictions are likely to slow economic growth significantly over this period, he remarked.

As previously reported, the newly-proposed guidelines for the importation of metal scrap into Malaysia have yet to be finalised. Negotiations between the Malaysia Non-ferrous Metals Association and state-based agency SIRIM QAS International Sdn. Bhd are ongoing with respect to the establishment of a minimum threshold for non-metallic and non-conforming content for all imports. As well as quantifying the non-conforming content, another aspect of the negotiations concerns who will oversee the inspection process and where the inspection will take place, at origin or destination, he said. If the proposed import restrictions are adopted, it is feared Malaysia could see many companies which had invested heavily in metal recycling moving to other less restrictive regions within Southeast Asia. Additionally, he said any future investments in Malaysia’s scrap recycling industry could be limited.

Owing to continued supply chain, employment and commodity price issues, there are concerns about whether inflation will rear its head again in the US, said Rick Dobkin, Shapiro Metals (USA), Board Member of the BIR non-ferrous metals division. The June inflation reading came out at a surprising 0.9 percent and the rate for the last 12 months is a 13-year high of 5.4 percent. In visits to consumers and suppliers, a consistent theme is that manufacturers could do more if they could only hire more employees. Labour costs continue to rise and manpower is in very tight supply, he said.  

The all-in US primary aluminium price is said to be at historically high levels. The regional premium is at an all-time high above US$ 660 per tonne and is expected to continue its rise. Certain types of mill grade and profile scrap have maintained a tight spread to the primary price, with other lesser grades starting to widen out as delivery appointments are out several months, Dobkin reported. Aluminium markets do not seem to be concerned about the Chinese efforts to temper commodity prices, while Russian export taxes are likely to keep prices and premiums elevated around the globe. Secondary ingot prices are at 10-year highs, but business is spotty as North America is still suffering from slowdowns and outages owing to labour shortages and continued chip supply issues, he stated, also adding that while secondary ingot prices are stable, scrap prices are dropping and it is becoming difficult to place secondary metal as supply is abundant. Also, copper and brasses appear to be in tight supply, he highlighted.   

Non-ferrous merchants and traders are reporting continued interest and demand for all metals from buyers not only in the UK but also from Europe, India and the Far East, said Susie Burrage, Recycled Products Ltd (GBR), Board Member of the BIR non-ferrous metals division. The enhanced quality criteria set by China remain a challenge but are being met. The increase in the LME lead price initially encouraged more material into the market; this is traditionally the stockpiled metal of choice for UK merchants awaiting significant price increases, but this proved to be short-lived, she commented, adding that merchants seem less inclined to stockpile any grade of non-ferrous metal and gamble on another substantial hike in prices, possibly as a nod to lessons learned when the market suddenly crashed in 2008.

Burrage said, high prices correlate directly with instances of metal theft in the UK, so merchants are reducing their security risks by lowering stock thresholds and selling in smaller parcels. “Thus, some exporters are finding it difficult to source significant quantities, with parcels of more than 10 tonnes becoming scarcer and thus attracting premium prices. This means margins have not widened as much as would normally be anticipated given the strength of LME prices.”

These high LME values are also increasing merchants’ needs to liquidate stock more quickly and in lower quantities to improve cash-flow, she said. Furthermore, credit insurance is becoming harder to obtain, with reassessments sometimes leading to limits being lowered, necessitating the trading of lower volumes if the merchant wishes the whole parcel to be covered by credit insurance, Burrage stressed.

Murat Bayram, European Metal Recycling Limited (GBR), Board Member of the BIR non-ferrous metals division, reported that the German economy started expanding again in the second quarter of 2021 and all major indicators are showing positive growth signals. The expectation for the whole year is a strong rebound and growth of almost 4 percent, fuelled by the Covid vaccination programme, he said.

VDM’s business climate index for Germany’s non-ferrous industry also shows that optimism is winning out. Compared to other industries which have suffered greatly during the pandemic, Bayram said, “the recycling industry in Germany and around the world has demonstrated what can be achieved by focusing energy on opportunities in such an environment rather than by worrying about what cannot be controlled.”

In his view, the European Green Deal and the European Commission’s “Fit for 55” package to facilitate a 55 percent cut in greenhouse gas emissions by 2030 can be seen as an opportunity for the recycling industry. “It is very important that we sit at the table when politicians are developing new rules or we run the risk of theorists trying to explain to the experts in our industry how recycling functions.”

Marketwise, he said, there is strong demand for scrap all over Europe. European aluminium billet premiums are increasing amid a continuous supply deficit. Availability of quality scrap is very tight. European secondary aluminium alloy prices, like the 226 ingot price, are steady as well. This also applies to the copper market and to other metals. Owing to very short supply and availability, it has been a seller’s market so far this year. The only dark clouds are over the freight market. Just like metals, the shortage of freight options this year has led to higher logistic costs, he noted. 

Russia’s GDP growth forecast for 2021 has been increased to 3.8 percent from 2.9 percent. However, this figure will probably be subject to further reassessment given the recent headline: on June 25, the Russian government published a decree, effective from August 1 for 180 days, implementing export tariffs on a number of grades of ferrous and non-ferrous, reported Natallia Zholud, TRM Group (BLR), General Delegate & Board Member of the BIR non-ferrous metals division. The tariff is set at 15 percent and a fixed US dollar/tonne rate of at least US$ 2321 for nickel, US$ 1226 for copper and US$ 254 for aluminium. This will be imposed on the following export-dependent grades: copper cathodes, billets, wire rod; brass and bronze ingots; secondary aluminium ingots; and unalloyed nickel and aluminium.

The reasoning behind the tariffs, according to a government statement, is to halt the growth of metal prices and to support the local market and construction industry by restoring to the state budget “120 billion roubles of excess profits” (approximately US$ 1.5 billion) made by metal producers from exports. The news led to a chaotic two weeks in the local market: scrap yards and smelters cleared inventories in an attempt to export as much as possible before the end of July, with several major metal consumers reducing prices by as much as 25 percent for copper sourced locally moving into August and stopping imports of copper scrap, said Zholud. “It is still too early to evaluate the impact, but analysts are already predicting profit losses for Rusal of 27 percent. Smelters are also shifting annual contract negotiations from August to November/ December given that, following September’s parliamentary elections, a permanent plan to replace the tariff will be presented.” 

Leopoldo Clemente, LCD Trading S.R.L (ITA), Board Member of the BIR non-ferrous metals division said this has been a hot summer so far for domestic non-ferrous metals operators in Italy who, as never before, are managing considerable operational complexities and “who are preparing to face the latter part of the year with creativity, flexibility and determination.” In fact, 2021 has been a stimulating year that could be taken as a reference point for many market “experiments”, he noted. “One stimulus has certainly been the automotive sector - an important source of scrap and a flagship industry for Italy. This needs at least one million cars in production to maintain its supply chains while producing just over 500,000 units. Part of the sector is destined in the near future for a transformation given the growth of electric vehicles; indeed, car components themselves will face a phase of investment and conversion to adapt to this shift towards electric mobility,” Clemente stated, adding that their indomitable operators have the same desire and enthusiasm to develop new relationships and opportunities and to grow. “The mood is positive despite persistent and considerable stress on pricing.”

 

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