India's aluminium scrap imports dip 6% in Jan-Oct'24. Road ahead to depend on auto sector?

• Buyers remain cautious amid volatile LME prices
  
  
• Semis' exports drop, ingot imports rise; hit scrap
  
  
• China export rebate withdrawal may impact India
  
  

Morning Brief: India's aluminium scrap imports dipped 6% to 1.45 million tonnes (mnt) over January-October, 2024 (10MCY'24) compared to 1.54 mnt seen in the corresponding period last year (CPLY).

On a m-o-m basis, volumes remained flat at 156,486 tonnes (t).

Imports from the United States saw a significant decline of 21% to 348,403 t. The United Kingdom also experienced a reduction, but a much lower 4% to 138,442 t.

Grade-wise imports

Import of Zorba declined 20% to 322,440 t in this period under review. Similarly, Taint Tabor saw a decrease of 7% to 315,267 t. The Extrusion (Tread) category remained almost flat at around 237,130 t. Tense, the grade most used in manufacturing ADC12, held firm at 199,400 t.

Factors that dragged down aluminium scrap imports

High volatility in LME aluminum prices: The aluminum market experienced significant price volatility on the London Metal Exchange (LME), causing buyers to adopt a cautious approach. In January 2024, aluminum prices hovered at around $2,300/t, climbing to $2,700/t in May, before falling back to $2,200/t in July. However, following China's recent export rebate cuts, prices surged again to $2,700/t. This scenario held back Indian buyers from procuring scrap from overseas.

This price volatility particularly impacted imports of some major grades. According to BigMint's analysis, Zorba 95-5 showed considerable fluctuations, rising from $1,960/t in January 2024 to $2,150/t in May, only to drop back to $1,950/t by August, cautioning buyers to step back.

Drop in semi-finished exports: The aluminium semi-finished export market was majorly impacted in 2024, falling by a steep 84% to a mere 5,531 t in January-September 2024, as per the latest data, which in turn impacted imported scrap consumption.

The exports decline can be attributed to an oversupply in the domestic market of ADC12 alloyed ingots amid a decline in overseas demand for the same, especially from Japan, India's largest market. Local suppliers increasingly turned to domestic scrap because of its better price viability when compared to the imported material. This shift, combined with subdued export demand, led to an excess of ADC12 ingots in the Indian market.

Rise in cheaper aluminium alloyed ingot imports: India's aluminum alloyed ingot imports, which were negligible a year ago, witnessed a significant 45% surge in 10MCY'24 to 199,300 tonnes. This shift was driven by the price competitiveness of imported material, which made it more cost-effective to manufacture finished products via semis, compared to domestic supplies, bypassing scrap imports.

Secondly, the rise in imports coincided with weak export demand, as key destinations like Japan remained dull. This combination of subdued exports and increased imports marked a notable change in market dynamics compared to the previous year.

Thirdly, with demand for semi-finished cooling in China and Japan, producers from Malaysia and the Middle East found it advantageous to redirect their surplus production to India. These producers leveraged India's growing market through favourable import prices, and duty-free benefits under Malaysia's FTA norms.

ADC12 prices hit 9-month lows: Notably, BigMint's assessment shows OEM-approved ADC12 prices hit a nine month low recently at INR 209,000/t ($2,473/t)ex-Delhi NCR. Ex-Chennai prices were at INR 210,000/t ($2,485/t), their lowest since May 2024.

This drop can be attributed to a decline in India's largest automaker's price settlements over 10MCY'24. The latest price for December was settled at INR 209,000/t ($2,473/t), sources informed BigMint.

OEM-approved prices were also volatile. These hovered at INR 191,000/t ($2,260/t) earlier this year, went up to INR 223,000/t ($2,640/t) in July and came down to INR 209,000/t ($2,473/t) recently.

Additionally, the surplus inventory prompted auto OEMs to scale back their aggressive procurement of alloy ingots, further driving down prices of ADC12 (OEM-approved).

The fall in ADC12 prices naturally impacted its production and thus consumption of scrap, a raw material.

Outlook

China's finance ministry has announced plans to withdraw the current 13% export tax rebates on aluminium and copper semi-finished products, effective 1 December 2024.

With China shifting its focus on domestic production following the export rebate cut, the likelihood of a recovery in this market for India appears slim.

The trends ahead will hinge on the performance of the Indian automobile sector, which has been comparatively weaker this year but will play a crucial role in shaping demand for aluminum products going forward.