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Southeast Asia has been an important pre-processing hub for companies to get around China’s strict import standards, trade restrictions and high levies. Scrap is often being processed in Southeast Asia before being re-exported into China as refined scrap or aluminium alloy ingots.
Chinese smelters and traders told Fastmarkets that they are ready to import more material, particularly given the easing export restrictions for recycled copper and aluminium, which recently opened doors for new categories of scrap to be traded.
China’s imports of recycled raw materials are expected to exceed 4 million tonnes in 2024, up from 3.74 million tonnes in 2023 and 3.29 million tonnes in 2022, as Ge Honglin, president of the China Nonferrous Metals Industry Association, shared at a conference in November.
Secondary aluminium demand in China has surged in recent years due to a mix of government incentives to produce low-carbon materials, the country’s cap on primary aluminium production, as well as an ongoing shortage of bauxite.But Southeast Asia faces several obstacles in capitalizing on increased Chinese demand. A challenging construction and automotive landscape may dampen downstream demand, while key scrap-exporting nations seek to secure sufficient supply for themselves.
Also, persistent port congestion and stringent checks by authorities have added further logistical hurdles, creating a complex operating environment for industry participants.
Southeast Asian aluminium scrap market participants told Fastmarkets they anticipate that the biggest shift in the landscape in 2025 will probably be Trump’s second presidential term.
Chinese smelters have been bracing themselves for the potential breakout of renewed US-China trade tensions, mirroring Trump’s first term in office, Fastmarkets reported.
Thus far, Trump has threatened levies as high as 60% on Chinese goods, although the exact magnitude remains uncertain, considering that Trump later pledged “an additional 10% tariff on China.”
Historically, past trade tensions have often benefitted non-Chinese processors. The breakout of a tariff war eight years ago spurred increased Chinese investment in Southeast Asia, likely fueled by companies looking to circumvent potential import restrictions and higher tariffs by relocating production to the region, a Singapore-based trader said.
Malaysia continued to hold the largest share of US aluminium scrap exports, taking 21.31% during January-November 2024, with tonnages increasing by 7.20% year on year, according to the latest data from the US Department of Commerce.
Malaysia imported a total of 351,162 short tons of US-origin aluminium scrap in January-November, up from 327,568 tons in the same period in 2023.
In January-November 2024, Thailand held the third-largest share of US aluminium scrap exports at 15.51%, up from 10.33% in 2023.
That said, Trump’s policies could also trigger a stronger US dollar, which would make scrap and freight more expensive for importers, a second Singapore-based trader said.
“The [London Metal Exchange] has been extremely volatile, yet downstream demand has not been rising as quickly as scrap costs, so consumers have been very cautious in the past year. These have pushed aluminium alloy prices higher, but margins are thin and transaction volumes limited,” the second trader added.
Fastmarkets’ price assessment for aluminium ingot ADC 12 spot (MJP), cfr Japan averaged $2,315-2,376 per tonne in 2024, up by $82-144 per tonne from an average of $2,171-2,294 per tonne in 2023.
The global race to dominate the electric vehicle (EV) market has also been driving increased investment in Southeast Asia, which could potentially lead to higher aluminium and scrap demand, sources shared.
With falling automotive sales across Europe, North America and Japan, it seems that many car manufacturers are placing bets on Southeast Asia’s growth potential, a Malaysian trader said.
Several new manufacturing hubs in Southeast Asia were announced by Chinese EV producers – such as BYD, Chery, Wuling and Neta – in the past year.
South Korean automakers have also been positioning themselves for growth in the Southeast Asian market. Back in March, Kia said that they were considering an investment in Thailand. Hyundai Motor announced in late November that it would invest $479 million in Malaysia over five years, starting in 2025.
Japanese automakers have also been ramping up investments in car manufacturing in Southeast Asia, although they are playing a slightly different game, betting on hybrid vehicles instead of EVs.Southeast Asian countries have been trying to delicately balance incentivizing foreign EV investment with protecting the domestic industry.
The Thai government introduced the EV3.5 program, which includes purchase subsidies, excise tax reductions and import duty cuts. To promote domestic production and curb an oversupply of imported vehicles, Thailand’s Board of Investment (BOI) set a ratio of two Thai-made cars for every imported vehicle, starting in 2026.
Malaysia has extended import tax and duty exemptions for assembled EVs until 2025 and tax exemptions for disassembled EVs until 2027.
Vietnam is exploring subsidies for electricity used at EV charging stations to boost domestic adoption, according to a Reuters report in August.
And Indonesia has been offering tax exemptions for EVs with more than 40% of their components produced domestically, according to an announcement from the country’s Ministry of Finance in February. The minimum domestic content will be raised to 60% by 2027 and to 80% by 2030.
“With the new plants and emphasis on minimum local content, aluminium scrap suppliers are hoping for a busier year ahead,” a Thai trader said. “But we might only see the impact of these policies in late 2025, or only in 2026, because the import glut will take some time to clear.”
2024 was otherwise a largely challenging year for automakers, which dented aluminium scrap demand.
Southeast Asia’s total vehicle production for the first nine months of 2024 slumped to 2.82 million units, down by 12.6%, or 404,455 units, year on year from 3.22 million units, according to the ASEAN Automotive Federation.
While market participants foresee a surge in scrap demand, questions have emerged regarding whether the region’s infrastructure is able to support the anticipated growth.
Major ports in Southeast Asia – including Malaysia, Thailand and Singapore – experienced significant congestion in the second half of 2024, which pushed up freight rates and caused delays for many metals shipments.
Cargoes at Malaysia’s Port Klang, a major destination for aluminium and aluminium scrap, were taking weeks or even months to clear, with no straightforward communication from Malaysian authorities, Stella Ying Wang, senior trading manager at American Iron & Metal, wrote in a Bureau of International Recycling (BIR) report in November.
“Many shipping lines are avoiding this important regional hub altogether. This has forced businesses to divert shipments to alternative ports such as Thailand’s Laem Chabang, adding pressure to an already overstretched logistics network,” Wang said in the report.
Market participants attributed the congestion in part to the Red Sea crisis, meaning that many cargoes that would typically be dropped off in the Middle East had to be rerouted to Singapore and Malaysia instead.
Stricter checks on scrap containers in Malaysia and crackdowns on recycling facilities in Thailand both added to the delays, sources told Fastmarkets.
In 2022, the Standards and Industrial Research Institute of Malaysia (SIRIM) put in place a zero-impurity limit on all copper, aluminium and steel imports.
To get around the restrictions, some importers were misdeclaring aluminium scrap under alternative harmonized system (HS) codes, such as for aluminium flake, Fastmarkets reported.
“In Thailand, government inspections of recycling facilities have uncovered widespread violations, resulting in the closure of many operations,” Wang said in the BIR report. “These shutdowns aim to address long-standing environmental concerns, including the mishandling of imported recycling materials, mislabeled shipments and the processing of low-grade or hazardous materials.”
While diversions to other regional ports in Vietnam, Indonesia and the Philippines are possible, the interconnected nature of the market increases the risk of cascading disruptions, Wang concluded.
A global shortage of scrap could potentially limit the volumes available to Southeast Asian importers, with prices in exporting markets, such as Europe, being driven higher by the supply-demand imbalance, Fastmarkets heard.
But European secondary aluminium producers are concerned that they, rather than importers in other regions, will endure most of the supply shortness, being faced with higher operating costs and less buoyant end-user demand than companies in Southeast Asia, as well as China and India, they told Fastmarkets.
“CIF Asia prices regularly rival European prices,” one European scrap trader and secondary alloy producer said. “It’s a reality we have to face; I don’t think it’s going away. And with supply so short, prices inevitably go up.”
A second trader and secondary producer said, “Asian demand grows every year. China eased its restrictions, and besides China, a lot of other Asian countries are investing in processing capacity, while Malaysia and Thailand have significant secondary alloy production as well.”
Scrap generation is linked to the performance of the economy, and as such, it is low in Europe, sources said.
“In this economy, we’ll keep on seeing a lack of scrap. All the sectors are struggling – automotive, construction. When there is less demand [for new cars], there is less scrapping of old cars. Fewer buildings going up means less demolition. Manufacturing rates are also low, so we see less production scrap,” the first European source said.
And this low scrap generation has been compounded by growing competition, not just between the domestic and export markets but within the domestic market through the growing appetites of primary alloy producers for recycled content.
“We see huge demand from primary producers. Many of them have ambitious targets for raising their recycled content in the coming years, and that has a big effect on scrap prices, which, unfortunately, they can afford, but [secondary producers] can’t,” the first European source said.
The second trader and secondary producer said, “Competition with exports and primary producers are both big challenges, but competing with the primary industry, it’s impossible for us to win. Their products have more added value, so they can match scrap price increases, whereas the secondary ingot markets are very depressed.”
But, for now, there is limited overlap in the material that primary and secondary alloy producers compete for. The first secondary producer estimated that only around 15% of the scrap it consumes consists of grades that are also sought by primary producers.
Cast scrap, for example, which is a major raw material for secondary producers, cannot be used to make primary alloys due to high silicon content. Mixed scrap is typically also avoided by primary producers because of their low tolerance for contaminants.
The issue of different demand pressures on different grades of aluminium scrap also applies to the export market. Markets that buy exported scrap largely do so to utilize their processing capacities, adding value to lower-quality scrap by increasing its purity or selling it on in the form of ingots, Fastmarkets understands. As a result, the overlap between the new emerging demand for scrap from European primary producers and the growing appetites overseas might be limited, Fastmarkets understands.
But investments in processing capacities in Europe (and other key exporting markets, such as North America) will mean that more mixed scrap, such as end-of-life automotive zorba and twitch, will be processed and consumed by primary alloy producers. This would put them in direct competition with alloy-importing regions such as Southeast Asia, as well as with secondary producers in Europe, a consultant told Fastmarkets. “The effect on price can be felt across all grades. Certainly, the discount from the LME aluminium price has decreased in recent years for most grades, including secondary,” the source said.
Even primary producers, with their value-added products, view export demand as a threat, and many European market participants believe that scrap is a critical resource to be protected, Fastmarkets heard. One potential solution often raised by market participants is export restrictions, for example, in the form of export tariffs, an idea that has as many detractors as supporters.While no such tariffs are currently due to be introduced, the EU will implement new rules to its waste shipment regulation from May 2027 that will apply conditions on the sale of scrap to countries outside the Organization for Economic Cooperation and Development (OECD).
Asian demand for imported scrap will persist until countries such as India and China develop their own collecting and processing industries to utilize their own latest scrap, sources told Fastmarkets.
“Particularly in China, where a lot of aluminium is soon going to start coming to the end of its life after 20-30 years, there will be a lot of material available for recycling. But currently, the scrap industry there just isn’t developed enough,” the consultant said.
Until then, Chinese demand will continue to absorb material from Europe and the US — often via Southeast Asia. And until any effective export restrictions are introduced, healthier margins in Asia mean there is little European scrap consumers can do about it.
“All the problems we are facing – low scrap availability, increasing competition with the primary sector and with exports, rising scrap prices but stagnant ingot prices – none of this looks like it will change any time soon,” the first secondary producer said.