n° 169 – December 2020

The tight scrap market described in my previous report has not only persisted but intensified. Scrap grades destined for secondary aluminium production and also those bound for rolling mills and billet producers are enjoying extraordinary domestic demand; despite a positive export environment, Mexico is currently a net importer of both secondary and primary grades.   

According to market analysts and based on our perceptions on the ground, this tightness is likely to continue well into the first half of 2021. Mexico is now importing scrap that historically were exported, namely primary grades, for which domestic generation has always been limited and domestic expansions are having a dramatic impact. Billet casting capacity has massively increased while scrap generation has not necessarily followed suit; to a lesser extent, the same is happening with rolling mill capacity for which expansions are outpacing scrap generation. The result is predictable: lower or zero exports of aluminium scrap, and a clear increase in imports.

While all this might appear bullish for the domestic scrap trade, the reality is that the imbalance between scrap supply and demand is only intensifying local competition and further compressing margins already under stress because of extra regulations and diminished volumes owing to COVID.

The Mexican peso has strengthened from MX$ 20.61 to MX$ 19.77 to the US dollar over the last 30 days, acting as an additional headwind for scrap exports.