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US & Mexico Aluminum Scrap Intelligence Report (July 29, 2019)

Executive Summary

USA MARKET COMMENTARY

1. US shredders and export homes compete for old sheet units.

Our intel from the ground indicates that shredders are purchasing old sheet units to mix within the zorba they produce in order to achieve more volume. According to our visibility, domestic old sheet prices stand this week between 46 cent/lb and 48 cent/lb. These prices translate into discounts under MWTP (MWP+LME) between 53-55 cent/lb. Meanwhile, export prices delivered to the US East coast are being quoted around 43 cent/lb. 

While at face value, US shredders and secondaries might be paying better nominal prices than the export market, in some cases recovery deductions are larger in the domestic market than in export homes. Therefore, export homes seem to be more appealing to some scrap dealers along with quicker pay terms, causing a portion of the domestic units to find its way overseas.

More details in full report.

2. 6061 turnings and pucks boost profitability of some extruders.

The majority of US secondary producers (A356, A319, A380) who purchase both 6061 turnings and pucks, are facing declining demand and sit on high inventories. As a result, US Secondaries are paying mid to upper 30 cent/lb price range for these units, down from the low to mid 40 cent/lb range earlier this year.

Extruders along the US East Coast that have upgraded their facilities to process 6061 turnings and pucks as an alternative to painted 6061 extrusion scrap, are now taking advantage of the decreased 6061 turning and puck price. Although they are paying between 48 cent and 50 cent/lb for these units, around 50 cent/lb to 52 cent/lb under MWTP (LME+MWP), they are better off than buying painted 6061 extrusions (has a similar recovery) currently being traded around 66 cent/lb, a 33 cent/lb discount to MWTP. Based on furnace recovery alone, extruders who have the ability to utilize 6061 pucks and turnings will deepen their profits by at least 12 cent/lb on the volume of 6061 pucks used instead of painted 6061 extrusions.

Note: because of environmental laws, we understand extruders can only use a certain amount of 6061 turnings and pucks each month, which makes them an alternative to painted 6061 scrap and not a full replacement.

More details in full report.

3. 6061 sheet, plate, and clip prices plummet upon slim demand from US extruders.

HARBOR has confirmed that prices for 6061 SPC (Sheet, plate, and clip) are currently being traded at between 51 cent/lb and 53 cent/lb delivered most US regions. This equates to around a 47 cent/lb to 49 cent/lb discount under MWTP (MWP+LME), down sharply from between 58 cent/lb and 60 cent/lb at the beginning of July because of a strong export presence on the US Westcoast.

More details in full report.

4. US mills move orders of 3003 and 1100 scrap units to November.

Last week, HARBOR reported that a decent volume of 3003 was being traded at between 79 cent/lb and 81 cent/lb delivered into the US East Coast and Midwest. At that time the price translated into a 21-23 cent/lb discount below MWTP (MWP+LME). It seems that most mills bought a good amount of volume last week and have pushed new orders out as far as November delivery. In the same vein, a couple of US brokers are quoting 3003 units around 74 cent/lb for early August delivery into the US Midwest and South. The spread widened 2 cent/lb to 25 cent/lb under MWTP. Meanwhile, HARBOR has confirmed that multiple brokers are quoting around 76 cent/lb for 1100 units, which translates into a discount of 23 cent/lb under MWTP. At the same time, a few US mills are quoting 1100 units at 82 cent/lb delivered into the US South for November delivery. The spread is at a smaller discount of 16 cent/lb under MWTP, but the delivery period is several months out.

More details in full report.

MEXICAN MARKET COMMENTARY

1. Mexico's UBC and/or Class Scrap exports to Saudi, Germany, and Korea, have more than compensated for lower flows to the oversupplied US market.

In Jan-Jun 2019, total Mexican scrap exports increased by 18.6 kmton y/y (or 16.6%), to 130.9 kmton. Even though exports to the US declined 8.1 kmton y/y to 82.9 kmton during the same period (down 8.9%), alternative homes like Korea, Germany, Hong Kong and Saudi have stepped in, more than compensating the decline in exports to the US. In more detail, hard market data indicates that the export volume increase can be attributed to a significant spike in exports to: a) South Korea increasing to 10.9 kmton (up 301% y/y); b) Hong Kong rising to 4.0 kmton (up 51.4% y/y); c) Saudi Arabia increasing to an all-time record high of 3.8 kmton (up 543% y/y); and Germany adding up to 8.1 kmton during H1 2019 as volumes started to flow to the country only after February 2019. 

According to our visibility, material flowing to Germany is mainly class scrap from the Northeast hub, while units flowing to Saudi are UBCs (especially from the Jalisco hub), and material flowing to South Korea is mainly industrial returns from a company based in the Northwest hub. In some cases, UBC and Class scrap flowing to these alternative homes is not necessarily a result of a wider price arbitrage window, but simply a resource for scrap dealers to move their material amid the ongoing oversupply of aluminum units in the North American region.

More details in full report.

2. UBC export prices decline.

As we promptly reported last week, US based traders/scrap dealers have been actively buying UBC units in the Mexican market for export to alternative locations (such as Saudi Arabia) as spot demand in North America remains considerably weak. According to our visibility this trend continued this week, but prices paid for UBC material weakened to 52.5 cent/lb picked up in Mexico's Northeast hub, down from as high as 54.5 cent/lb last week amid a slight correction in LME primary aluminum prices. Nevertheless, this week's prices continued to be enough to attract metal, as domestic prices at the consumer level stood mostly around 51.0-52.0 cent/lb. In this context, domestic UBC prices at the consumer level could increase a bit in coming weeks as consumers return to the spot market after the summer slowdown.

More details in full report.

3. NASAAC prices increase to a two-month high; secondary ingot prices in the region could stabilize ahead (US and Mexico).

This week, NASAAC 3M prices reached a two-month high of 55.1 cent/lb, up 1.6 cent/lb from a week ago, and continuing their recovery from a near-decade-low of 49.7 cent/lb recently reached on June 27. As of today, this represents a spread around 16.0 cent/lb below journalistic secondary A380 alloy ingot prices of 71.0 cent/lb, a discount that has continuously tightened during July from near record levels of 25.0 cent/lb by the end of June. 

Nevertheless, NASAAC material continues to flow out of the LME system. As of today, NASAAC inventories stand at a two-year low of 85,840 mton, after outflows added up to 2,660 mton this week. Most of this week's outflows were taken out of New Orleans (2,140 mton), followed by Detroit (300 mton), and Chicago (220 mton). For domestic material, today's price spread between secondary A380 alloy ingot and NASAAC continues to be wide enough to prompt inventory outflows.

More details in full report.