SMM, November 20: On November 15, 2024, the highly anticipated "Announcement on Matters Concerning the Regulation of Imports of Raw Materials for Secondary Copper and Copper Alloys, and Raw Materials for Secondary Aluminum and Aluminum Alloys" (hereinafter referred to as Document No. 23) was officially implemented. The aluminum scrap market showed mediocre performance. According to feedback from relevant enterprises, the import policy in Document No. 23 imposes a 1.5% import tariff on three types of aluminum scrap products: raw materials for secondary pure aluminum (HS code 7404000040), raw materials for secondary wrought aluminum alloys (HS code 7404000050), and raw materials for secondary cast aluminum alloys (HS code 7404000030). However, the raw materials for secondary cast aluminum alloys with HS code 7602000020 will maintain a provisional tariff of 0. Currently, aluminum prices at home and abroad have long seen the LME outperform SHFE. The already high cost of importing aluminum scrap from overseas, coupled with the 1.5% tariff on three new categories of aluminum scrap that are allowed for imports, has somewhat increased the cost of imported aluminum scrap products. This has dampened the enthusiasm of traders, casting a shadow over the expected increase in aluminum scrap imports following the policy announcement.
Since October, the domestic primary aluminum spot market has fluctuated upward, and the aluminum scrap market has followed suit, with prices rising rapidly. In early October, domestic secondary aluminum alloy and remelting billet enterprises operated well, leading to high demand for aluminum scrap. Additionally, some aluminum scrap suppliers were optimistic about the market outlook and hoarded their stock, resulting in a shortage of aluminum scrap in the spot market. Secondary aluminum processing enterprises had to increase their procurement prices for aluminum scrap. Aluminum scrap continued to be in tight supply, leading to a narrow fluctuation in the price difference between A00 aluminum and scrap in October. In late October, high raw material costs led to poor profitability for some secondary aluminum alloy enterprises. Coupled with weakening orders in downstream industries such as die-casting, the operating rate of secondary aluminum alloy enterprises declined, reducing their enthusiasm for purchasing high-priced aluminum scrap. The domestic aluminum scrap market showed stagnant growth, and the price difference between A00 aluminum and scrap widened. Especially in early November, the primary aluminum market surged, with SHFE aluminum reaching a high of 21,800 yuan/mt. The aluminum scrap spot market struggled to keep up, and the price difference between A00 aluminum and scrap continued to rise. According to SMM data, on November 8, the price difference between A00 aluminum and mechanical casting aluminum scrap in Shanghai was about 3,184 yuan/mt, up 514 yuan/mt from early October. The price difference between A00 aluminum and shredded aluminum tense scrap in Foshan reached 2,498 yuan/mt, up 523 yuan/mt from early October, hitting a new high for the year. Last week, the primary aluminum spot market plummeted, and the aluminum scrap market followed suit to a lesser extent, leading to a slight narrowing of the price difference between A00 aluminum and scrap.
Domestic aluminum scrap supply: In October, the overall supply of domestic spot aluminum scrap increased, mainly driven by the high prices stimulating the outflow of old scrap from social recycling. The main domestic aluminum scrap yards saw active transactions, with aluminum scrap inventory running at low levels. Additionally, the operating rate of domestic aluminum processing and end-use aluminum products enterprises was good in October, leading to a certain increase in the supply of new materials such as off-cuts and aluminum shavings.
Imported aluminum scrap: On October 24, 2024, the Ministry of Ecology and Environment, the General Administration of Customs, and other six departments issued the "Announcement on Matters Concerning the Regulation of Imports of Raw Materials for Secondary Copper and Copper Alloys, and Raw Materials for Secondary Aluminum and Aluminum Alloys". Raw materials for secondary copper and aluminum that meet the requirements of the annex are not considered solid waste and can be freely imported. This announcement, effective from November 15, 2024, removed obstacles to the import of secondary aluminum raw materials in China, providing a policy basis for legal and compliant imports. The volume of aluminum scrap imports is expected to show a recovery growth in the future. From January to September 2024, the total domestic aluminum scrap imports reached 1.356 million mt, up 6.9% YoY. With the implementation of the new policy and the additional tariffs on new secondary aluminum imports, the expected recovery in aluminum scrap imports fell short in the short term, with the annual total likely to be around 1.8 million mt, up about 2.9% YoY.
Downstream demand: In October, the operating rate of domestic downstream scrap utilisation enterprises slightly declined MoM, mainly due to the weak price increase and poor profitability. Additionally, insufficient end-use demand suppressed the upward trend in operating rates. Furthermore, in late October, heavy pollution weather-related environmental protection controls were implemented in many northern regions, leading to production cuts in some secondary aluminum processing enterprises.
In October, the operating rates of secondary aluminum enterprises showed mixed changes, but the overall industry operating rate slightly increased. According to an SMM survey, nearly half of the enterprises reported little change in new orders in October, with operating rates basically flat compared to September. 30% of enterprises (mainly large ones) benefited from the recovery in automotive demand and the push to meet annual targets in Q4, leading to increased production. The remaining enterprises saw a decline in operating rates due to multiple factors, with cost-side impacts being significant. In October, the weighted average cost of the ADC12 industry increased by 3.9% MoM due to rising aluminum scrap costs. Downstream enterprises were less receptive to high prices, and the ADC12 price struggled to rise, turning the industry's theoretical profit and loss into a loss. As aluminum prices rose, the loss margin widened, and raw material shortages and losses forced enterprises to reduce production. Additionally, the extended National Day holiday and regional environmental protection controls also dragged down operating rates.
Entering November, aluminum prices surged for a week and then fell for several days, with volatile market conditions continuing to suppress downstream procurement sentiment. Additionally, the raw material dilemma remained unresolved, and the loss-making situation of enterprises persisted. The operating rate of the secondary aluminum industry is expected to decline again in November.
Brief comment: Overall, in September and October, domestic aluminum scrap prices fluctuated upward, driven by the strong performance of the primary aluminum market and the tight balance of aluminum scrap supply and demand. However, entering November, the domestic aluminum scrap market was affected by bearish factors such as insufficient operating rates and poor profitability of downstream secondary aluminum alloy enterprises, leading to weak price increases and a widening price difference between A00 aluminum and scrap. Additionally, with the domestic aluminum scrap import policy becoming more relaxed, the market expects a recovery in overseas aluminum scrap imports. The increased enthusiasm of domestic aluminum scrap suppliers to sell at high prices and the growth in market circulation also put downward pressure on aluminum scrap prices. Overall, the price difference between A00 aluminum and scrap in November is expected to fluctuate at high levels.
