Aluminum rebounding

Recycling Today, August, 2005

After significant erosion in aluminum scrap prices this spring, a number of aluminum dealers are seeing a modest strengthening in markets. The improvements should, several suggest, continue for the second half of this year, as the typically slow summer season segues into a more robust fall.

While the market is more upbeat presently, most see aluminum scrap as being stable. Prices on the London Metal Exchange (LME) have improved a bit, which has resulted in more confident markets going forward.

There are a host of reasons for the more upbeat outlook, including the steady demand from more domestic producers seeking aluminum scrap for their machines.

The recent decline in a number of shredder operations in light of soft ferrous scrap prices has resulted in a commensurate decline in shredded nonferrous metals, working toward the advantage of aluminum scrap pricing.

The well-publicized problems with the domestic auto industry have had a negative impact on ferrous and nonferrous markets. Although recent specials have jumpstarted auto sales, scrap dealers are concerned about the difficult time the U.S. auto industry is having. Without a stronger pick up in demand next year, aluminum demand from this large end market could soften. Even with better markets in other sectors, the lack of a stable-to-strong domestic auto industry could create problems for aluminum and for aluminum scrap as a raw material.

One large aluminum scrap processor notes that LME prices have been climbing during the past several months. At the same time, copper scrap is defying all expectations and continues to remain at record high levels.

The overarching reason for the improved aluminum scrap market during the past several months has been the improving world economy. The U.S. economy, for one, has been showing continued signs of expansion. The Chinese market continues to dominate the news, also. Strong buying of copper and aluminum have kept these grades up firmly. India also is becoming a more active player in the market.

"I don't see nonferrous going down in the short term," a processor located on the East Coast notes. For aluminum, the processor says he sees "a lot of upside."

In the Midwest, a similar sentiment is held by a number of suppliers. One scrap dealer says that aluminum scrap is "trending upward." While some domestic consuming plants have been taking downtime, the supply is not a factor at the present time. Aluminum scrap is softer in pockets, though the overall sense is that markets should firm up. He says that through the rest of the summer, markets may be a bit desultory, though longer term he is much more bullish on aluminum scrap.

Adding to his overall bullish sentiment, if China comes in stronger, there could be further increases in aluminum scrap pricing.

Another scrap dealer echoes these remarks, noting that if aluminum prices decline enough, Chinese buyers will come into the market to snap up larger lots of the grade. Strong offshore buying could create some type of pricing floor.

Many scrap dealers are somewhat bullish on markets, but the opinion is not universal. Acknowledging that conditions are ripe for an improvement, another scrap dealer who focuses exclusively on aluminum says that aluminum scrap prices are down because of a lack of demand in light of the slowdown in production during the summer. Several aluminum scrap consumers have taken the opportunity to extend maintenance downtime around the July 4th holiday, which has reduced their demand for raw material.

While there have been some negatives on the market, most aluminum scrap handlers do not foresee prices for aluminum falling much further. However, the upside could be very lucrative.

(Additional news about nonferrous scrap, including breaking news and consuming industry reports, is available online at www.RecyclingToday.com.)