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EU aluminum scrap industry faces death by China

By: | at 08:00 PM | Channel(s): International Trade  

The European aluminum scrap industry will die unless measures are taken to control Chinese consumption in the coming years, the leading body of European refiners and remelters said.

The president of the Organization of European Aluminum Refiners & Remelters (OEA), Jim Morrison, said China would need to import an extra 4.5 million tons a year by 2020 because of a lack of domestic supply.

China imported more than 620,000 tons of aluminum scrap in the first eight months of this year, up almost 46 percent from 2003, according to official customs figures in Beijing.

“The additional tonnage will be the equivalent of vacuuming up the entire current scrap supply in Europe,” he said.

European aluminum scrap production has risen to more than three million tons a year from 700,000 some 30 years ago, while exports reached 180,000 tons last year, an increase of 30,000 from 2002, industry figures show.

“European aluminum scrap exports in the first seven months of 2004 indicate that the total by the end of this year will again be higher than in the record year of 2003,” OEA secretary-general Gunter Kirchner said from Dusseldorf.

European premiums over the London Metal Exchange cash price have more than doubled to 60 euros ($75) a ton this year because of firm demand, particularly in the new EU member states.

However, traders said Chinese buying had also squeezed European supplies, with most sales going from the Netherlands.

“If this is not controlled, the European aluminum recycling industry will cease to exist and this has very serious implications also for European car component production and consequently for European car production,” Morrison said.

“Production of scrap cannot be stimulated by demand. You cannot go out and plant more scrap trees or open a new scrap mine.”

The addition of scrap in production of primary aluminum is widespread in European Union countries as many producers have a second furnace, or cast-house, that can melt scrap.

Secondary aluminum producers make virtually all their production from scrap, with the resulting ingot delivered for use in the car industry.

Chinese vortex

Strong Chinese industrial growth in the next 15 years, paired with little history of investment in aluminum production there, would leave the country a vast net importer of scrap, Morrison said.

Chinese generation of scrap was currently estimated at about 1.5 million tons a year, he said.

Chinese demand for consumable goods was underlined by government forecasts that car production would hit 20 million a year by 2020 from about 4.5 million last year.

“It is generally known that China is dramatically increasing secondary aluminium production, and that it does not have enough domestic scrap to run these capacities,” Kirchner said.

“Consequently, we expect that (Chinese) aluminum scrap imports will increase continuously in the coming years.”

Chinese secondary alloy production has the potential to rise to six million tons a year from 1.3 million at present based on projected consumer demand, according to the OEA.

Kirchner saw little chance of European consumers filling any deficit from elsewhere, such as Russia. “Since Russian scrap exports to Europe have stopped more or less, there is no way to compensate this deficit by exploring other scrap sources,” he said.

Russia consumes the vast majority of the scrap metal it generates each year. Aluminium scrap is subject to a 30% tax, or mot less than 380 euros a ton, which has largely stymied exports.

The OEA had made its concerns known to the European Commission in the past year, according to Morrison, who said: “We do not intend to sit idle and watch our industry destroyed.” (Reuters)