CRU Aluminum: Job Growth Continues, Scrap Demand Declines

US non-farm payrolls data showed stronger than expected job growth in April and a further drop in the unemployment rate. The US Bureau of Labor Statistics (BLS) reported that 253,000 jobs were created in April against an expectation of 180,000, while the unemployment rate fell slightly from 3.5% to 3.4%.

The US financial markets stabilized in April following a turbulent March. Yet core inflation remains persistently high, continuing to pose a major risk and to give a strong indication that further hikes in interest rates are expected from the Fed. Nonetheless, our April GDP forecasts saw a slight upward revision in growth for 2023 to 1.0%, and we continue to expect a mild and short recession to begin in the US around mid-year.

Industrial production, which provides a direct correlation to metals consumptions, has weakened since the end of last year. CRU expects the recovery in industrial production to be postponed until 2024. That’s because the construction sector is expected to underperform in 2023 but to rebound in 2024, supported by the Infrastructure Investment and Jobs Act.

The latest scrap receipts reported by the Aluminum Association surveys continue to reflect the slowdown in consumption activity. Can stock scrap receipts totaled 68.0lb million in March 2023, falling in total by 10.2% year-on-year. Declines in receipts were across all three scrap classes, yet the highest was in the class III category, which fell by 13.8%. Receipts in Q1 totaled 191.0lb million, a decline of 14.3% on the same period in 2022.

Softening demand and a muted economic environment continued to reflect on Midwest premiums, which continued to buck the trend of regional premiums by falling the second month in a row. Midwest premiums in April averaged 25.3 $/lb, a 9.1% decline month-on-month, yet still higher than end of 2022 levels. The latest UBC prices that we have been hearing are around 0.79 $/lb ($1,742/t), where the discount to the LME is widening slightly month-on-month. The clean, segregated 5052 scrap continues to earn a small premium to the LME due to its rising magnesium value.

In late April, two industry-wide conferences were held in the US. Both the ISRI and the Aluminum Association annual meetings featured discussions and CRU analysis on the strategic importance of secondary metals and scrap processing. In a tightly balanced global primary market, and with geopolitics further effecting trade flow of primary aluminum, secondary aluminum and scrap trade remains a top priority throughout the value chain. Add the new supply capacity coming into the region in 2023 – 2028, for both extrusions and flat-rolled aluminum, and scrap market dynamics will gain significance.

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By Stephen Williamson, CRU Research Manager, stephen.williamson@crugroup.com