LME prices remain dragged down by evidence of slowing demand; next two weeks look crucial for LME price direction

Segregated 7075, 7155, 7050 scrap units are selling at discounts of around 35 cent/lb below the MWTP (LME + MWP). We estimate that scrap currently represents around 50%-60% of aerospace slab/billet intake. According to our visibility, today´s long scrap market is allowing secondary producers involved in making 7xxx aluminum slab/billet to use at least 50% scrap as feedstock. In a Section 232 environment, duty-unpaid scrap units make a substantial difference to the bottom line of producers of aerospace slab and billet.Secondary aerospace slab/billet producers sell their product on a LME + MW duty-paid + slab/billet upcharge of around 25-30 cent/lb for this material, while they buy their scrap (half of their feedstock) on a duty-unpaid basis at discounts of 35 cent/lb below the MWTP. In the end, secondary slab/billet producers sell 100% of their material at 25-30 cent/lb above P1020 and buy at least 50% of their feedstock at 35 cent/lb discount below P1020. This makes for a very attractive margin.

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