2019 continues to present various challenges for our industry, including uncertainty regarding policy. At the time of writing, China is yet to renew import licences due to expire on July 1 for many of their scrap metal consumers. At this point, it is not clear when the renewals will be issued, what scrap grades will be covered and which ones might be excluded.
Meanwhile, the USMCA (United States, Mexico & Canada) free trade agreement has yet to be ratified by the legislative bodies of the three countries. American labour unions are exerting pressure on the US Congress not to approve the agreement unless Mexico executes labour reforms that would close the gap on incomes, benefits and conditions between workers in the USA and in Mexico. Removal or permanence of tariffs on steel and aluminium, but not scrap steel or scrap aluminium, form part of what remains to be finalised.
The old NAFTA remains in place for as long as a new agreement is not passed. However, the absence of certainty regarding the details of the new agreement is affecting the investment climate.
Yet another political issue filtering into trade is the disagreement between President Trump and the US Congress on the urgency of addressing border security and immigration by building a border wall; this has resulted in commercial customs agents being reassigned to address applications by asylum seekers. With fewer agents and lanes available for commercial trucks, waiting times have sky-rocketed, thereby reducing the number of export runs that companies and truckers can make.
The abundance of scrap and limited processing capacity within North America, including Mexico, have caused scrap prices to plummet over recent months. Prices for several grades of scrap aluminium - such as used beverage cans (UBCs) and old sheet - have now reached lows at which scrap generation has been negatively affected; low prices, and especially continuously dropping prices, discourage the collection of obsolete scrap. As a result, major traders and yards with yearly delivery commitments are now struggling to meet them and have thus started chasing some prompt delivery scrap units at a discrete premium to the rock-bottom prices that we have been seeing. If low prices persist, we could see a direct effect on recycling rates of obsolete non-ferrous scrap such as UBCs.
Overall, the Mexican market remains well-supplied, and thus it is more likely that more Mexican scrap units will find their way into the export market - not necessarily to the USA, which increasingly exports some scrap aluminium units to Mexico, but increasingly to wider overseas destinations such as in Asia and Europe.
Historically, Mexico has been a consistent exporter of some red metal scrap grades such as No.2 copper and yellow brass scrap. With the uncertainty surrounding these grades, it will be interesting to see whether smelting capacity develops to export copper blisters and no-specification brass ingots.
Alejandro Jaramillo
Glorem SC (MEX), General Delegate of the BIR Non-Ferrous Metals Division
Country
Mexico
