Pictured, above: Jason Schenker of Prestige Economics
Recent trade-related moves, from the introduction of Section 232 tariffs on finished aluminum imports into the United States from countries excluding Canada, Mexico, Australia, Argentina, South Korea, Brazil and member countries of the European Union to China’s tariffs on aluminum scrap imports from the U.S., have led to hesitation in the aluminum sector.
“I’ve never seen the kind of volatility and uncertainty and risk as what’s going on right now,” said economist and futurist Jason Schenker, who spoke during the Spotlight on Aluminum at the Institute of Scrap Recycling Industries (ISRI) annual convention and exhibition, ISRI2018, in mid-April.
Schenker is chairman of The Futurist Institute and president of Prestige Economics, Austin, Texas. He was joined in the Spotlight on Aluminum by fellow speaker Liu Wei, deputy secretary general of the China Nonferrous Metals Industry Association Recycling Metals Branch (CMRA), and moderator Matt Kripke of Kripke Enterprises Inc., Toledo, Ohio.
The International Monetary Fund (IMF) in January of this year predicted a 3.9 percent global growth rate for gross domestic product (GDP) in 2018 and 2019, Schenker said. Such growth should be good news for aluminum.
“Aluminum, like most industrial commodities, is bought and not sold,” he continued. “The demand side is critical to the market, which is why when China went into a manufacturing recession and spent 18 of 19 months between December of 2014 and June of 2016 in a recession, aluminum took a big hit,” as did other globally traded commodities, Schenker said, adding “because the global economy is what will drive prices at the end of the day.”
However, he said the global growth rate tends to be strong when trade is strong, which means it could slow as a result of tariffs. Schenker cited the possibility of further escalation in tariff retaliations. “The trick with tariffs is that they are a lot like cockroaches: There is never really just one.”
He mentioned that the sanctions the United States has placed on Russian aluminum producer Rusal were creating supply disruptions at a time when the aluminum market is extremely short.
Other factors that could affect the outlook for aluminum is the risk of inflation, with Prestige Economics predicting four interest rate hikes by the U.S. Federal Reserve Bank in 2018. Wage inflation also has been increasing, growing by 2.9 percent in January, Schenker said.
CMRA’s Wei said the U.S. ranks first in terms of supplying aluminum scrap to China at a rate of 28.5 percent, followed by Hong Kong at 26.7 percent and Australia at 12.3 percent.
While China’s “solid waste imports” declined by 54 percent from February through March of 2018 relative to the same period in 2017 as a result of the country’s changes to its scrap import policies, according to the country’s customs agency, aluminum scrap imports decreased by only 9 percent over the first two months of 2018, Wei said.
The Chinese central government plans to ban imports of Category 7 scrap by the end of 2018, he said, noting that as of 2017, this material accounted for 27.7 percent of aluminum scrap entering China. That was down from a rate of 41.9 percent in 2016.
Wei said aluminum scrap generation within China has been growing at an annual rate of 10 percent, adding that the country expected to replace its aluminum scrap imports with domestically generated material by the end of 2019.
ISRI2018 was April 14-19 in Las Vegas at the Mandalay Bay Resort & Casino.