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Listen: Aluminum scrap market in transformation

Scrap aluminum has gone wild. There are new taxes and financial obligations in China and Vietnam; licenses, regulations and restrictions in Vietnam, Taiwan, Brazil, and other countries, resulting in unpredictable price trends. When the year started, prices were generally expected to fall from supply, but on the contrary, prices picked up in some markets.

Join S&P Global Platts metals editors Mayumi Watanabe, senior news editor in Tokyo, Rebecca Grenham, senior pricing specialist out of Washington, DC, and Henrique Ribeiro, Latin American editor in Sao Paolo, to learn more about changing scrap market dynamics; and a special focus on used beverage cans.

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Mayumi: "Welcome to S&P Global Platts Commodities Spotlight podcast….. my name is Mayumi Watanabe, and I am a senior news editor based in Tokyo. I have with me today Rebecca Grenham, Senior Pricing Specialist based in Washington DC, and Henrique Ribeiro, editor in Sao Paulo but joining us from Mexico City.

Hello Rebecca, Henrique!

Rebecca: Hello!

Henrique: Hi!

Mayumi: Every month, around 50,000 mt of aluminum scrap, particularly mixed metal like Zorba, need new buyers as governments in China and other Asian countries restricted scrap imports. In 2018, China imported 1.6 million mt of scrap, which is down 28% from 2017. Taiwan bans imports of all types of mixed metal including Zorba. Some market participants have forecast prices to fall non stop. How is the market in the US, Rebecca?

Rebecca: Actually some prices in the US improved because exports to China seems to have increased because of less restrictions, among other factors like winter weather. Basically, after the restrictions, we've heard some US scrap guys cleaned up their products in order to pass inspections, and have been able to export to China successfully. Mayumi, what's happening there? Is this true?

Mayumi: Chinese market participants say US scrap with a 25% import duty is not popular. The latest data we have is China customs reporting imports of 40,000 mt of aluminum scrap from the US in December, which is a 34% decline from January 2018. Chinese data says the country is importing more from other Asian countries. China's scrap aluminum imports from Japan were 12,000 mt in December, up thirteen times from just 900 mt in January.

Some market participants say US scrap may be showing up in Chinese customs as non-US origins, as they may have been trans-shipped to another destination in Asia before reaching China. We are waiting for January customs data.

Henrique: Oh really? This is very interesting—Actually Mexican scrap is also banned in China, and I was wondering if Mexican exporters could be trying to do the same.

Mayumi: Many Asian market participants also say the quality of mixed metal from all over the world seems to have improved with less impurities, and have been able to pass inspections by customs as well as third-party inspectors in shorter time. The total US scrap exports in 2018 are higher compared to 2017.

Rebecca: Exporters are still drawn to higher prices outside the US—zorba, for example, we're hearing is roughly 48-50 cents to export, compared to 38-40 domestic, and export old cast is about 50 cents compared to 46 cents. I am hearing US scrap is going to Thailand, Malaysia, India, and Southeast Asia… I thought these countries followed China and started to ban imports of scrap. What is the case?

Henrique: Yeah, what I have heard from the scrap dealers in Mexico is that they are trying to find new customers in other Asian countries where they already had business, although they still consider Asian prices too low in many cases. On the other hand, selling domestically keeps complicated as the demand remains poor, particularly for smelter-grades.

Mayumi: After China shutting out imports, Taiwan, Thailand, Malaysia and Vietnam feared scrap flooding into their countries. Plastic waste contained in the mixed metal was the problem. Scrap became a national emergency. In Vietnam, the prime minister is directly involved in regulating the scrap traffic. On the other hand, governments got complaints. Because import procedures were complicated, scrap cargoes were abandoned at ports. That became a problem. Metal consumers told the government, you are killing the industry and you are breaking your own rules, so confusing. My business is about supporting the growing population. The country needs metal. Previously you were saying resources, including scrap, need to be protected.

Vietnam has export tax on scrap, and Malaysia requires licenses to export metal scrap.

Henrique: Wow..

Mayumi: Vietnam, that took the toughest measure, first said no imports of industrial waste, but several months later modified to allow imports of scrap with minimum 99% metallic content. First Asia went on a crash diet, but they adapted to new realities in various ways, and started to buy.

Some could not just get the type of scrap they wanted on time so this caused market inefficiencies where prices in one place were high and another place were low. Zorba with 98% metal content was recently heard selling around $1100/mt CIF Busan, which is around 50 cents/lb CIF and the level Rebecca heard. But there are also people who would not mind lower grade material with lots of impurities because they have a way to deal with it, and buyers in south Asia are asking less than 30-40 cents/lb or $660-880/mt for Japanese UBC.

Henrique, how is the Latin American market?

Henrique: Brazil prices are actually going higher, but this mainly due to a new regulation that is requiring companies to report about all their inventories to the fiscal authorities. This generates additional costs to the scrap dealers' operations and also prevents some usual practices of skipping taxes when restocking scrap. So now, some extruders for example reported that they are trying to move away from the scrap as much as possible, and although some yards are said to be sitting in huge scrap stockpiles, they are not willing to move prices down due to the new regulation. So the market got to a deadlock in which scrap dealers don't see how to drop prices while consumers prefer to buy P1020 than scrap considering the price and the yields. The only exception is the UBC.

Mayumi: Wow interesting. How are the UBC prices in Brazil?

Henrique: Most of the market is trading at around Brazilian Real 4.90/kg, which converts to around 59 cents/lb. Prices fell significantly through February as an important consumer, which is considered by many as the second largest UBCs buyer in the country, suddenly stopped to place orders for some weeks. It is still not clear if this was a move to force prices down or if there was any other specific reason regarding production behind this.

Mayumi: In Japan, it is $1,150-1250/mt FOB, or 52-67 cents/lb for pressed UBC. Prices have been falling past six months because exports stalled due to sudden growth in available scrap supplies globally, and also like Henrique said, some big Japanese buyers, the cansheet makers, were buying less due to reduced beverage demand which is typical during winter. But from January overseas buyers came back and thanks to that, Japanese UBC prices are holding stable. I heard prices in Vietnam are also the same level, while prices are heard a little higher in Malaysia, Thailand and Indonesia, and the highest in South Korea. How about in the US?

Rebecca: UBC prices are around 57-59 cents, as of last Thursday. In the US those prices are calculated as a percentage of the US Midwest Transaction price—so for example, today's percentage is 55-56%, vs 60% or higher in years past, so the spread has widened, showing some weakness in that market.

Now UBCs, from what we've heard, were not really a popular export product, exporting was very rare. However, we're still seeing UBC supply swell in the US as a few major UBC consumers have eased (or almost completely stopped) purchasing them because they're switching from producing cansheet to auto sheet, or choosing to import cansheet rather than produce it domestically. So basically demand for UBCs is down. At the same time, the public has not stopped recycling UBCs, so supply keeps growing while demand softens. Dealers we've talked to are really struggling to find homes for UBCs at the moment as consumers keep pushing appointments further forward.

Henrique: Interestingly, UBCs, which always tended to be relatively cheap in Mexico compared to the US, are now trading at more similar prices, and in January it was even more pricey in Mexico than in the US during a few weeks! This prevented Mexican sellers to the export the grade to the US despite the weakening of the Peso versus the Dollar during the period, and the current spread of around 5 cents/lb is still keeping the Mexican UBCs within the country

Mayumi: In conclusion, we are in the middle of market dynamics change. In Asia, scrap, once seen as pollutants, are re-recognized as valuable raw material. In the US, prices improved for some scrap as imports to Asia started to rise. Scrap prices in Mexico have risen above US levels for some time in January, which is unusual. In Brazil, there is no clear direction after the new regulation. Random price levels heard in various parts of the world show that market is in the process of absorbing the changing supply landscape, and trying to discover the best mechanism to satisfy demand. We will continue to follow this closely and we will be back again soon to share with you the latest. If you would like more news and analysis on metal market, please check out platts.com, our daily publication Metals Daily and real time newswire Platts Metals Alert.