China imports of aluminum scrap have dropped by 70pc since the implementation of new export restrictions in May. Aluminum scrap imports dropped to 34,272mt in May from 112,445mt in April. On an annual basis, imports fell by 40pc from 57,268mt in May 2020. 

 

According to China’s new Customs specifications for aluminum, scrap must hold a minimum yield of 94pc to qualify for import. As a result, many importers in China have stopped purchasing zorba entirely or have significantly lowered their purchase prices over the past few months. On the other hand, exporters told Davis Index that while 99/3 zorba, a common grade shipped to China sold at around 78¢/lb fas US ports in April, this grade was being quoted and transacted at around 67-68¢/lb towards the end of June.  

 

This difference in pricing has been made to accommodate the cleaning or “repolishing” costs associated with the new scrap standards because importers from China are redirecting shipments to Hong Kong or Malaysia to be converted to either Tweak, which is long-throw zorba separated using eddy currents, or Twitch, which is a refined zorba grade that uses a heavy media separation (HMS) method. These are the only grades that pass clearance today since their yield is nearly 97-98pc aluminum. 

 

That said, some buyers from China reported last week, that the new specifications are so well regulated that at times even Tweak does not meet the norm. Asian buyers are now either using the HMS method in neighbouring countries or buying Twitch directly. 

 

Over the past few months, some zorba separation plants in the US have noticed a spike in demand for Twitch from Asian countries like China and Malaysia due to this trend. In fact, these plants are moving away from the domestic market since they find much better prices in the export market. 

 

Comparatively, while domestic smelters are bidding at 74-75¢/lb delivered, export prices to Asia are now close to 80¢/lb fas. As a result, Chinese secondary smelters are running low on inventory due to a dearth of scrap grades like Tense and Taint/Tabor despite the bare minimum 2pc attachments. The strained supply chain has forced these smelters to sell ADC12 fob China port at $2,500/mt or above to Japan while the buyers in the latter are willing to pay only $2,350/mt as the global semiconductor shortage has hampered demand for this alloy.  

 

The Chinese government’s declaration on Jun 14 to auction 800,000mt of its aluminum reserves over a period of two months or less has also caused shockwaves in the market. Buyers are now wary about how it will impact SHFE pricing for aluminum and in turn, their end margins for ADC12. Some market participants believe this move was made to create speculation in the market and freeze purchases for a while. After all, for a country that produces more than 1.2mn mt of primary aluminum in a month, 800,000mt over a prolonged period may not move markets a lot.  

 

Meanwhile, high-recovery scrap from the US, such as A356 wheels, bare 6063 extrusions, and primary grade MLC, are in high demand in the domestic market, leaving negligible volumes for exports. The fact that the spread between domestic and import prices is close to 10-12¢/lb for these mill-grades makes life harder for exporters. The global container shortage has a big role to play in this. While some say that containers are now more readily available than a few months ago, shipping companies would rather accept premium goods as cargo, leaving scrap exporters with very few options.  

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