Liquidity just one of many challenges
As has been the case for a couple of years, the last two months have been anything but uneventful.
One of the topics dominating the news headlines and affecting aluminium demand has been the shortage of computer chips, which has been especially acute in North America. The shortage has been so severe that automotive industry publications estimate the production of 800,000 vehicles in North America has been affected. The production loss is put at 136,000 vehicles in Mexico alone - equivalent to 18% of the output expected in the first four months of this year.
The impact is already being felt on aluminium scrap demand. Prices have been capped not only by the lower demand resulting from auto assembly line stoppages but also by the abundant supply of Twitch from the USA owing to the shortage of containers.
Another issue dominating the Mexican scrap market is the challenge of liquidity. Some consumers and domestic traders have run into cash-flow issues, resulting in yards now giving preference to prompt payment terms over theoretical high prices with unknown payment dates. Demand for aluminium extrusion scrap remains robust and attracting scrap units from abroad. This trend is likely to continue at least until the end of this year.
The shortage of containers has not been as acute in Mexico as in other regions, so scrap exports remain a relevant alternative for most of the country’s yards.
COVID cases and hospitalizations have been dropping in most Mexican states, and the leisure and entertainment industries are reopening. Around 10 million Mexicans are now fully vaccinated and a total of 14 million have received at least one dose, representing respectively around 7% and 12% of the population but still far from enough to reach any kind of immunity. At least one silver lining is that there is less policy volatility and, at present, no threat of the industrial and manufacturing shutdowns seen last year.
With the pandemic now in its second year, BIR is about to hold its third consecutive online Convention. In these times of hardship, it is important to support our world organization and the free trade message it upholds and amplifies. That said, I can hardly wait for our next in-person Convention. Meanwhile, let’s all stay safe and green.