COMMODITIES 2025: EU aluminum secondary alloy outlook cloudy on poor economic climate

This is part of the COMMODITIES 2025 series where our reporters bring to you key themes that will drive commodities markets in 2025.

Lackluster demand and overcapacity in Europe are expected to contribute to a tough environment for the European aluminum secondary alloys market in 2025, amid a weaker overall economic climate, while global competition for aluminum scrap is set to maintain pressure on prices, with large volumes headed to Asia.

Market sources have raised concerns that this will continue to tighten the scrap availability in Europe, contributing to higher scrap prices across the year, and maintaining pressure on secondary aluminum alloy production margins.

Indeed, the market enters the new year in an already tense economic environment. S&P Global Purchasing Managers Index (PMI) data showed the eurozone economy contracted in December for the second successive month, reflecting a sharp reduction of output in the manufacturing sector. Germany's factory output saw the second-fastest rate of decline, behind only France.

"After speaking to companies in the building and construction sector, there is not an expectation of recovery in Q1 25. The automotive industry is not bad, but construction is not good," said an Italy-based producer.

Across 2024, new EU car registrations remained relatively stable, up 0.4% on the year, data from the European Automobile Manufacturers' Association showed.

This, however, was primarily led by a strong market in Spain, with growth of 5.1%, while France, Germany and Italy saw contractions of 3.7%, 0.4% and 0.2%, respectively.

2024 Overview

European 226 grade secondary alloy started last year in a range of Eur2,280-2,320/mt as of Jan. 5, 2024, with a midpoint of Eur2,300/mt, seeing a relatively stable first quarter.

Prices then climbed across the second quarter and into the summer season to reach a yearly high of Eur2,380-2,470/mt July 5 -- with a midpoint Eur2,425/mt.

Aluminum secondary alloy prices were largely driven over the year by scrap prices, with increased Asian demand for scrap putting upward pressure on the material.

This reached a climax in the summer, with the Platts daily assessment for high-grade auto shreds scrap, meeting ISRI Twitch specifications, reaching an annual high of Eur1,890/mt DDP Germany across June 25-July 15. Platts is part of S&P Global Commodity Insights.

Following a period of reduced liquidity across the summer, the market entered a downward trajectory over H2 2024.

Aluminum scrap prices fell as Asian demand for the material dwindled, which did put some relief on Twitch prices across the second half of the year. This, alongside sustained poor demand, put downward pressure on aluminum secondary alloy prices.

Changing Approach

In response to challenges faced over 2024, market sources noted that they have changed their approach for secondary alloys in 2025, with less focus on long-term contracts and more on spot purchasing, so both producers and buyers can be more reactive to market conditions.

"The market now moves continuously; it feels that every day there is a new story that changes the market. Our customers now have to check prices on a weekly basis," one Italian producer said.

Meanwhile, downstream consumers are following suit.

"We have made the decision to have less [long-term contract] coverage than previous years, so we can be more reactive to market changes and have spot availability," an OEM source said.

Uncertain political landscape

Politics will also be a market driver in 2025, with US President-elect Donald Trump's inauguration seeing potential for incoming protectionist policies, and there will also be elections in both Germany and France.

Sources remain particularly wary of potential changes to tariffs following the growing trade disputes between the US and China.

"It is difficult to predict the duties that will be implemented in the next weeks. China implemented their ban on critical mineral exports so I don't know how Trump will retaliate," a secondary alloy producer said. "We can't forecast or predict the political decisions made, we will just have to react."

During his campaign, Trump called for universal tariffs of 10-20% to be placed on all US imports, with additional tariffs of 60-100% on all goods from China.

Reports now suggest that Trump may narrow his target and implement tariffs to cover only imports deemed critical to the US' national security; which will include aluminum.

As for German elections on Feb. 23, some sources shared optimism in the hope that a new government may be able to kickstart the country's waning automotive sector.

"The German elections could be good news for the automotive industry because the current government did little to ease the pressures on the sector. We are in need of a change," a German OEM source said.

Aluminum scrap outlook

Looking forward to 2025, sources continued to express concern as to the availability of aluminum scrap, with some suggesting a continuation of higher-export trends seen in 2024.

"It is true that availability is low, especially for Twitch as large volumes are being exported to Asia and so there are missing quantities in Europe, which is another reason why prices are high," a German scrap buyer said.

There was also a slowing of scrap generation due to the weaker industrial activity in Europe.

"I have been visiting scrap yards across Germany and there are low stocks across all grades and quantities," an Italian scrap buyer said. "The new generation of scrap is 20-30% lower than in previous years," he continued.

"It is a question of time when [secondary alloy] producers will be affected. If they cannot produce with a margin then they will have to shut," the German scrap buyer said.

Scrap prices have now stabilized, with the latest Platts assessment at Eur1,710/mt Jan. 8, on a DDP Germany basis, unchanged since late November 2024.