The recently declared bankruptcy by Real Alloy parent Real Industry is causing concern over pricing and consumption in the scrap industry, panelists said Tuesday at the S&P Global Platts Aluminum Symposium in Miami.
Though Real Alloy has been operating as usual, as the largest secondary smelter in the US, Real Industry's bankruptcy has sparked worry that scrap consumption would drop greatly should Real slow or stop operations.
Real Industry filed for Chapter 11 protection with the US Bankruptcy Court for the District of Delaware in November 2017. Goldman Sachs was recently identified as a stalking horse bidder.
Gary Taylor, chief operating officer at Wise Recycling, highlighted Real's importance for his company.
"Their assets might be disposed, but for us in scrap, we need somebody to operate [Real's assets] we need those assets operating," Taylor said. "Whether it's one person or five, it would be important to have someone taking control of [Real]."
However, there is concern about who could potentially be a buyer of Real Alloy's assets. "It would be great to have someone buying it, but it's just too hard to feed that beast," said Kripke Enterprises President Matt Kripke, referring to Real Alloy's large portfolio of assets.
Real Industry's Chapter 11 bankruptcy filing gives the US secondary aluminum industry an opportunity to correct historically poor operating and sales practices, said Regional Metal Services President Garey Rittenhouse. Rittenhouse identified the combination of raw materials price volatility, risk management practices, and strategies for alloys pricing as the main bottlenecks that could be corrected, thus benefiting from the impact of Real Industry's Chapter 11 filing.
"Alloy consumers should also take the opportunity to evaluate their purchasing strategies and the risks associated with larger supplier insolvency," he said. The Real Alloy situation creates an opportunity to directly purchase secondary processing units, he said.
Ingot-side sources have speculated that, should Real stop producing, alloy prices would soar.
"We haven't seen the bankruptcy affect too much so far, but Real is the largest smelter, so there would be chaos if something happened to them," a US broker said later on the conference sidelines. "The A380 price would rise by 25 cents, easy."
Platts last assessed the secondary aluminum A380 alloy at 97-99 cents/lb, delivered Midwest, on January 11, up from 96-98 cents/lb on January 8.
