European secondary aluminum prices set to shift lower as oversupply bites

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Secondary aluminum prices in Europe, after gaining €70/mt ($86) since the start of 2018, have pulled back by a similar amount toward the end of the first-quarter, and look set to shift lower throughout the balance of the year as overcapacity weighs on the market.

Commodity-grade 226 aluminum alloy, as reported by S&P Global Platts, spurred on by strong demand in the fourth quarter of 2016 and predicted consumption levels for the first quarter of this year, moved up from a low of €1,690-€1,740/mt delivered at the start of October 2017, reaching a high of €1,830-€1,880/mt delivered in mid-February 2018. But in March, 226 prices have shifted steadily lower to €1,750 €1,850/mt delivered by the end of the month.

Europe’s recycled aluminum market has simply not had the export outlets, notably into Asia and the US which, more often than not, help to balance European supply. One of the main reasons for the lack of exports has been the strength of the euro against the US dollar, which in Q1 has remained strong since the start of the year at between $1.19-$1.24. The strong euro, in addition to the higher prices in Europe during Q1, has meant that export volumes to Asia and the US have been much reduced, leaving excess capacity in Europe. Secondary aluminum exports during Q1 were estimated at 500-1,000 mt/ month, much reduced from an average 3,000-4,000 mt/month and considerably lower than the peak level of 8,000-10,000 mt/month.
Most European market players predict that the pressure seen on 226 market prices during Q1 is likely to continue, at least for the short term, with the metal likely to oscillate between €1,700-€1,750/mt for the balance of the year. “Once 226 prices reach €1,700/mt then we will see Asian buying interest emerge and exports will be a possibility…and this will help firm up European prices,” said a Spanish producer. This scenario is also dependent on both the euro/dollar and the Yen/dollar rates being favorable. Others expected to see much more pressure on prices going into the second-half of the year with market prices, perhaps slipping below the €1,700/mt delivered level. “Given the market situation I think prices are too high and we will see more pressure on prices later in the year,” predicted a European diecaster, citing high melting capacities in Europe and good scrap availability.

Uncertainty surrounding US import duties on aluminum (10%) and steel (25%) has also had a destabilizing effect on the European market. While the European Union won at least temporary exemption, European market players have been concerned over the possible impact. “Some of our customers working for US car makers, such as GM in Europe, may be forced to put the price up of their casted parts by 10%,” said a southern European producer, adding that perhaps the price of secondary aluminum and casted parts would slide lower so that the European market can continue to trade with the US.

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