The new year has brought enthusiasm to the domestic aluminium scrap market. Prices for most aluminium scrap grades have risen to multi-year and historic highs.
Different grades have seen different drivers: UBC prices have been helped by rising LME and Midwest premium values as well as supply challenges owing to harsh weather in the USA, all of which have forced Mexican consumers to raise buying prices to ensure supply; extrusion scrap is being driven by the high run rates of Mexican cast houses amid a busy extrusion sector and tight billet supply; and prices of grades related to secondary aluminium such as cast aluminium and old sheet are being driven by limited restocking by Mexican consumers, RSI producers increasing their purchases and consistent export demand.
Headwinds persist for the Mexican economy. The final quarter of 2021 saw a GDP contraction of 0.3% adding to a 0.4% reverse in the third quarter; this would mean that the Mexican economy is now technically in recession. Accordingly, analysts have adjusted their 2022 projections downwards: a Reuters poll of several forecasters shows GDP growth this year is expected to be just 1.9%, while Bank of America is even less enthusiastic and has cut the growth projection from 2.5% to just 1.5%.
The Mexican peso has recovered some ground during the last month, fluctuating between MX$ 20.29 and MX$ 20.86 to the US dollar.
Apart from fierce competition for limited post-consumer scrap and more restricted volumes of industrial scrap owing to production challenges such as Omicron, there has also been a supply shortage affecting chips and conductors. Yards also have to deal with rising shipping costs as well as a scarcity of containers, vessel space and drivers.