Persistent economic uncertainty and weaker-than-usual demand meant Q1 2024 was challenging for the industrial aluminum scrap market.
But, with smelters in China — the world's biggest producer (and consumer) of aluminum — expanding capacity, and the drive towards sustainability gaining momentum, things are looking more positive going forward.
Here's a look at what happened on the industrial aluminum scrap market between January and March 2024, and how we think things will play out (and what this means if you sell industrial aluminum scrap) in the coming months.
The headline statistic from the first quarter of 2024 is that scrap aluminum prices were lower overall than they were in 2023.
During January, the London Metal Exchange's scrap aluminum price index dropped around 10%, reaching a low of $2,110 per ton.
Prices recovered somewhat during February and March. The scrap price for aluminum reached a high of $2,654 per ton. But it still ended the quarter 6.45% lower than in 2023: $2,270 per ton in March 2024, compared to $2,426.60 per ton in March 2023.
"In part," observes Metaloop co-CEO and co-Founder Alexander Schlick, "scrap aluminum prices came down because of sluggish performance in key industrial sectors, specifically construction and automotive."
According to the Royal Institution of Chartered Surveyors (RICS), while the outlook for the construction industry is the most positive it's been since the first quarter of 2023, growth is slower than it could be.
China's construction sector is having an especially hard time. But "...financial constraints and labor/skills shortages," the RICS Global Construction Monitor Q1 2024 notes, "[are] a significant impediment… across many parts of the world."
Similarly, while the automotive industry is expected to grow in 2024, it will do so at a slow rate. ING forecasts "relatively flat production volumes" and "softer" profit margins.
The decline in performance is sector-specific, Alexander Schlick clarifies. "Energy and food packaging are still doing well, for instance, and demand for aluminum scrap remains strong in these sectors."
That said, high interest rates and inflation are raising production costs and lowering consumer confidence across the board. And, ultimately, this is lowering demand for industrial aluminum scrap.
Geopolitical tensions — namely the war in Ukraine and the Israel-Palestine conflict — are also creating their own set of challenges.
"Large quantities of Russian aluminum continue to enter Europe," says Alexander Schick, "which is a complex issue.
"On the one hand, some Western markets are reluctant to trade it, and you've got people arguing in favor of banning Russian aluminum imports completely. On the other, you've got people saying Russian aluminum is critical, especially given what's happening in the Middle East."
30% of the world's container trade passes through the Suez Canal, so the war in Gaza has had a huge impact on supply chains and prices. Detours have increased shipping times by as much as two weeks. And, JP Morgan estimates the situation could raise core goods inflation by 0.7% during the first half of 2024.
While the current state of the world economy and geopolitical tensions mean the scrap aluminum market is somewhat uncertain, it's not all doom and gloom.
After limiting aluminum production in 2023 because of a spotty electricity supply, the province of Yunnan — China's fourth largest aluminum producer — announced it aims to ramp up production by 500,000 tons in 2024.
Other markets are also planning to expand production capacity. The US, for instance, is investing $500 million in a new green smelter. Similarly, Brazil will be pumping 30 billion Reals (around $5.84 billion) into the industry by 2025.
Given the growing focus on decarbonization and sustainability, it's likely that, alongside being powered by renewable energy, these new smelting plants — as well as those currently in operation — will be looking to replace primary sources of aluminum with scrap.
"There's ever more awareness of the environmental and economic benefits of reusing aluminum," says Alexander Schlick. "And, as a result, we're seeing growing demand for high-purity scrap aluminum in place of P1020 ingots. The industry is also putting a lot of effort and money into boosting innovation and efficiency."
This is a significant opportunity for both buyers and sellers. And, at Metaloop, we're working hard on a number of projects aimed at boosting aluminum's circularity and, so, it's sustainability.
Case in point, we helped one of our clients — a global producer with operations in 40 countries — secure a reliable, long-term supply of scrap aluminum by matching them with specialized manufacturers that work with materials which meet their specifications.
Using the Metaloop portal has enabled them to meet their sustainability goals, and shortened the supply chain, making it more cost-effective.
The greater focus on sustainability — as well as the current economic and geopolitical situation — has also shifted supply chain dynamics.
S&P Global reports that US and UK sellers are increasingly losing out to suppliers in the Middle East and Asia Pacific.
Industrial manufacturers are also facing competition from post-consumer aluminum scrap, particularly drinks cans and consumer electronics.
For instance, Hydro — the largest producer of aluminum billets in North America — announced in March 2024 that it has entered a partnership which will increase its supply of post-consumer scrap aluminum by 36,000 tons.
From a seller's perspective, this means proper sorting and storage — and strong partnerships — are fundamental if you want to maximize the value of your aluminum scrap.
"What scrap aluminum buyers are looking for, more and more, is to reduce their carbon footprint as much as possible," says Alexander Schlick. "But this needs to be balanced with other considerations. Can the seller guarantee a regular supply? Will deliveries arrive on time? And will the material be of reliable quality?"
Here again, Metaloop can help.
Because the Metaloop portal enabled them to make their scrap aluminum available all across Europe, one of our clients — a parts supplier for the automotive industry — was able to find new ways to market their material more effectively, and get better prices by selling directly to smelters.
After a less than ideal start to 2024, things are looking up for the industrial aluminum scrap market.
In April, the scrap price for aluminum trended around 15% higher than it was in March. More to the point, the scrap aluminum market is expected to grow at a compound annual rate of 8% during 2024 and beyond, meaning that demand should rise.
Needless to say, challenges remain.
"I think, first and foremost," says Alexander Schlick, "the market still needs to work out how to comply with stringent ESG guidelines.
"Recycling aluminum requires 95% less power than producing it from scratch. And yet, the industry's carbon emissions have only decreased slightly over the past few years. The International Energy Agency says it's not on track to meet Net Zero goals."
Import and export regulations — on aluminum scrap and commodities more generally — could also affect market dynamics.
The EU and the US have long discussed the possibility of a joint tariff zone, with 10% tariffs imposed on scrap aluminum from "non-market economies" like China. Whether this will come into force any time soon, though, remains to be seen. Things remain at an impasse despite intensive negotiations.
"Whatever happens," concludes Alexander Schlick, "we remain committed to helping you navigate the market's complexities.
Increasing aluminum recycling and circularity are critical to the fight against climate change. With that in mind, we continue to work hard to ensure we help our clients adapt and make the most of new opportunities in a rapidly evolving landscape."