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RAPID CHANGE IN GLOBAL ALUMINIUM MARKET

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Salam-SharifThis year the aluminium market is witnessing rapid change due to rapid geopolitical changes. The trade war between China and the United States (US) has affected the entire primary market fundamentals. The trade policy decision by China and the US has caused instability in aluminium prices and changed the global dynamics for aluminium scrap.

In April 2017, the U.S. Secretary of Commerce initiated an investigation under section 232 of the Trade Expansion Act of 1962, to determine the effects on the national security of imports of aluminium. The report led to a decision in March 2018 to implement a 10% tariff on all aluminium products, with a temporary exemption for Mexico, Canada, the E.U. and some other countries. The exemption expired on June 1st. Canada has retaliated and has announced plans to levy tariffs on US goods including steel, aluminium and other products.

The European Union (EU) has also firmly reacted; has opened a case at the World Trade Organisation and is consulting the different member states to also impose tariffs on a number of imports from the US. This unilateral action has revealed some massive difficulties throughout the value chain in other territories. With the implementation of a tariff in one region of the world, the metal simply flows to another region which is in turn more impacted. Furthermore, even if American mothballed smelters were to restart at near full capacity they could never supply the growing needs of the downstream sector, which have increased by 45% since the low of 2009. The U.S. produces less than 1 million ton of primary, the total capacity is less than 2 million for a consumption of 5 to 6 million tons. With the U.S. tariffs, downstream producing countries will face higher import prices and their own competitiveness will suffer in their own and other markets. The whole value chain would be hit by a snowball effect. It clearly appears that unilateral action will not address the root cause of persistent Chinese aluminium overcapacity.

China responded with a 25% tariffs on scrap aluminium, making US scrap less competitive on the Chinese markets that has many exporters now seeking domestic outlet for their materials. More noticeable changes are how manufacturers are using their products; The drive for energy efficiency whether to reduce cost or lower the carbon emissions; Major consumers are switching to the new alloys, packaging design when their products reach their end of life; Changes are affecting the recyclability of the products; Either to increase cost or to narrow the available market. The short term volatility gets the headlines and the long term evolution of aluminium use has a potential for disruption to recyclers operations.

There are a lot of unpredictable changes in the market place. China is changing the global dynamics for primary and secondary Aluminium as part of overhauling the scrap import regulations. As part of overhauling the scrap import regulations last year, China tightened its Non Ferrous scrap contamination to 1% which forced the US exporters to adjust what mix they are offering to make sure it complies.

Last May, they stopped all scrap export from the US and China when the Chinese government stated a month’s suspension on US operations of CCIC North America (the only authorised entity to conduct a mandatory pre-shipment inspection). The suspension delayed all material already in transit or in ports. At the end of the suspension, China set more new rules for pre-shipment inspection of scrap material that took effect June 1, requiring in-person each container loaded according to the American Metal Market on June 6. A lot of charges have been implemented, an hourly charge for the inspector time, per mile travel charges from the CCIC office, hotel, car rental or airfare for the inspector. ISRI was receiving reports from CCIC and ISRI members question such charges and communicate with the other companies to avoid double charging. Prior to the inspection changes, China restrictions had not hit aluminium scrap exports as hard as they hit other commodities like mixed paper and plastics, a certain portion which is now getting landfilled due to the lack of alternative markets.

Soutwood says, it’s unlikely the “situation will be that dire on the Aluminium scrap side, but there is a fear that eventually it may turn to that if the scrap loses all value.” Down the line, if the price of scrap aluminium, particularly Twitch the ISRI specification used for most shredded aluminium scrap start to erode the sheer amount pf materials that’s around, that could pull down other secondary grades of scrap. He suggested that processors are attempting to figure out how to upgrade Twitch to a product that more people in the US can use rather than relying on China’s consumption. They are also trying to find new export homes for this material.

This is not all surprising with a litany of factors supporting such moves, including the strong US economy, rising aluminium prices, growing domestic end-use markets and the recently announced trade cases, and Aluminium Section 232 tariffs and quotas could crimp supply throughout the US aluminium supply chain.

Matt Meenan, spokesman of Aluminium Association says, “Clearly the recovery of Aluminium prices could be volatile” and that decisions to add or restart capacity need to be long term decisions. London Metal Exchange (LME) three-month aluminium has been recently fluctuating between $2000 and $2400 per ton, up from $1800 to $1900 per ton about a year ago.

The US economy and most global economies is fairly strong, posting 2.2 percent GDP growth in the first quarter, while down from 2.9 percent in the 4th quarter of 2017, up from 1.2 percent GDP growth on the 1st quarter 2018. This is being helped along by several strong aluminium consuming sectors, mostly the automotive industry.

The North America CEO of Toyota, for example, said steel and aluminum tariffs could make vehicles more expensive to manufacture, which would in turn force automakers to drive up costs for buyers. Car prices across America are about to go up, says the North America CEO of Toyota. New tariffs on steel and aluminium could add anywhere from $13 to $400 to manufacturing cost on cars, says Jim Lentz. Those prices will be passed along to the consumers by automakers. Even though it is generally believed that North American automotive output peaked in 2016 and it has done at a very high level, with North American light vehicle production expected to be somewhere between 17.0 million to 17.5 million units this year.

The overall aluminium penetration per vehicle is continuing to grow, observes by Ganeesh Panneer, Vice President and General Manager automotive Atlanta based Novelis Inc, who says that according to the recent study by Ducker FSG, the overall aluminium penetration in light vehicles is expected to grow from about 400 lbs. per vehicle in 2015 about 456 lbs. in 2020 and over 565 lbs per vehicle in 2028, despite some uncertainty about the future of proposed fuel economy regulations.

Aluminium demand from other US end use market is strong, especially the construction, truck and trailer sectors. Even the aluminium can market that has been slightly down has recently moved marginally up year by year, helped by greater use of aluminium cans for craft beers and carbonated waters.

Global aluminium production growth ground to a standstill in the first half of this year. The world’s smelters produced 31.76 million tonnes of metal January-June, a 1 percent decline on the first half of 2017, as per International Aluminum Institute (IAI). In annualised terms, production outside of China has been creeping higher since January but the growth rate is being constrained by an unusually high level of disruption with multiple plants operating at reduced rates. National run rates in China, the world’s largest single producer, have also been recovering from last year’s combination of “illegal” capacity closures and winter heating season restrictions but are still down on year-earlier levels. This stuttering production profile fits in with expectations that this year will be one of global supply shortfall and a resulting drawdown in inventories.

The production in North America, Latin America, Western Europe and Africa fell in the first half of 2018 due to smelter problems. Rio Tinto reported that production fell to 74,000 tonnes in January-June from 218,000 tonnes in the year-earlier period. Latin America production is sliding due to the curtailment of half of the 450,000-tonne per year Albras smelter in Brazil. Hydro has cut the plant’s run-rate to align it with lower output at its Alunorte alumina refinery as mandated by a Brazilian court on environmental grounds. It is worth emphasising that this is an unusually long list of supply disruption in the aluminium market. The disruptive impact of US sanctions against Oleg Deripaska and his Rusal Empire has not yet affected actual operating rates across its Russian smelter network.

GCC smelters produced 5,178,798 tons of primary aluminum in 2017. EGA 2,533,000, ALBA 981,016, Ma’aden Aluminium 762,068, Qatalum 650,000, Sohar Aluminum 252, 714 (Total 5,178,798 tons in 2017). EGA being one of the largest primary aluminium producers in the world, though has had very limited growth in their production this year, but they are taking a keen interest in circular economy application.

They are committed more than ever to environmental and ecological impact by supporting the downstream industrial sectors. More challenges encountered this year due to trade war between USA and the rest of the world have created a commodity dire situation that focused more attention on recyclables being “hidden treasures” and declared as the 7th resource. And the Bureau of International Recycling (BIR) announced 18th March 2018 as the Global Recycling Day, which will be an annual celebration day to promote action on recycling around the world.

The seventh resource (after air, water, oil, gas, coal, and minerals) can help the industry in energy saving, carbon emission cutting, job opportunities creation, and finally helping the circular economy to function in securing preservation of natural resources for future generations. Although it is critical to export aluminium, due to US security, Emirates Global Aluminium seems to be prepared for any expected turbulences, seeking other markets as well like Asia and Europe in addition to the UAE market and the US, while the local market in the Middle East is promising to be more in demand in the near future.

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