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What has been driving auto/car body purchase prices in the UK?

Davis Index provides information on changes that have occurred in scrap car body purchase prices during the pandemic and whether there will be a demand for used vehicles in the UK in the coming months.

 

What has been driving auto/car body purchase prices in the UK fUK 5A/5C (frag feed) prices have catapulted from an initial COVID-19 lockdown afflicted low of £53/mt, delivered dockside, on March 31, 2020, to a multi-year high of £172/mt on the same basis on January 12, 2021.

With the UK under strict national lockdown measures today as they were back in late-March 2020, what have been the key developments and nuances between then and now which have drastically changed the landscape of frag feed prices?

Following the first sweeping national lockdown measures in March 2020, ferrous bulk processors dropped collection and delivered dockside purchase prices to reflect plummeting local and export demand.

UK merchant ferrous scrap suppliers willingly accepted significantly lower prices to liquidate inventories to release tied-up capital given that initial lockdown measures were relatively ambiguous on sector-specific movements.

Moreover, the rampant COVID-19 infections, ensuing lockdowns, furloughs, and redundancies began to materially impact consumer confidence and spending on steel-intensive big-ticket items such as new vehicles.

UK new passenger vehicle registrations declined 31.0pc to 483,557 units in Q1 2020 compared with 701,036 during the same period the prior year – with lockdown-afflicted sales figures in March being the determining factor between the two comparison periods.

While showroom closures negatively affected sales of new and used vehicles, British used car transactions fared comparatively better over the same period only falling 8.3pc to 1.85mn units in Q1 from 2.02mn the prior year.

This trend was further accentuated in the second quarter of last year as new car registrations plunged 70.1pc to 169,945 units while transactions for used cars witnessed a less severe decline of 48.9pc to 1.04mn units.

Market surveys conducted by the UK’s Society of Motor Manufacturers & Traders (SMMT) from that time suggested that the pandemic had prompted many consumers to procure a used vehicle rather than travel via crowded public transport.

Davis Index believes these purchasing decisions were also encouraged by the availability of financing facilities like those for new cars, repurposing of funds allocated to defunct travel plans, and less inclination to buy more expensive brand-new vehicles.

Third-quarter sales figures for new vehicles rebounded strongly to 590,154 units – 0.5pc down from the prior year – masked by the release of pent-up demand from Q2 and the demand for new cars issued with the latest registration plates in September.

Once again, transactions for used cars during the same comparison period performed much better; increasing 4.4pc to 2.17mn units in the three months to Sep’ 20 compared with 2.08mn in the same period the prior year.

This increased proclivity for used vehicles in the UK contributed to valuations for second-hand cars climbing 7.0pc higher on average in the third quarter of 2020, compared with the same period a year earlier, according to automotive consultancy cap hpi.

The decline in the availability of scrapped auto bodies was exacerbated by more cautious owners, extending the life of their vehicles, and robust appetite from the second-hand market between April and September.

Elsewhere, rebounding Turkish demand drove Davis Index’s Shredded benchmark 40.6pc higher from a recent low of $212/mt, cfr Turkey, on March 31 to $298/mt, on the same basis, on September 30.

By comparison, Davis Index’ UK national 5A/5C (frag feed) dockside purchase prices surged 104pc from its low of £49/mt ($60.76/mt), delivered dockside, on March 31, to £100/mt ($129/mt), on the same basis, on September 30.

More recently, fourth-quarter UK new car sales have once again been pegged back by intermittent regional tiered lockdown measures, with registrations falling 13.7pc to 387,408 units in the three months to December compared with the same period the prior year.

While the latest British used car transaction data for Q4 has not yet been published, Davis Index would expect to see a continuation of the trend whereby used auto sales outperform those of new passenger cars last quarter.

Insatiable Turkish ferrous scrap demand, which saw some steel mills procure material 60-90 days in advance, applied significant pressure on UK, European and US bulk exporters.

This resulted in Davis Index’ Shredded ferrous scrap import index leaping 67.7pc from $294/mt, cfr Turkey, on October 1, 2020, to its recent multi-year peak of $493/mt on January 12, 2021.

Given that UK bulk ferrous scrap processors witnessed markedly reduced vehicle scrappage rates from April 2020 onwards, dockside buyers aggressively increased frag feed purchase prices to secure sufficient volumes to meet fresh orders.

As a result, Davis Index’ UK national 5A/5C (frag feed) dockside purchase prices soared 81.1pc from £95/mt, delivered dockside, on October 6, 2020, to £172/mt, on the same basis, on January 12, 2021.

What is the short-term outlook for auto/car body purchase prices?

Looking forward, Davis Index estimates that demand for used vehicles in the UK will continue to outpace those for new registrations and, as a result, scrap dealers will need to pay a relative premium compared with previous years to source auto bodies.

At the same time, however, the recent ebb in Turkish ferrous scrap orders in the second half of January has released a modicum of pressure from major seaborne benchmarks and permitted UK dockside buyers to adjust their purchase prices lower.

Should a flurry of Turkish ferrous scrap purchases occur, which is widely anticipated to materialize in mid-to-late February, Davis Index forecasts that these recent price reductions for UK grades will be relatively short-lived.

Visit www.davisindex.com

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Owain Griffiths

Owain Griffiths

Head of Circular Economy at Volvo Cars

Owain joined Volvo Cars in June 2021 to lead Circular Economy in the Global Sustainability Team. The company has committed to being a circular business by 2040 and has financial, recycled content and CO2 based targets for 2025, all of which Owain is working across the company to make happen. Owain previously worked for circular economy consultancy Oakdene Hollins where he advised businesses on evidence led circular economy implementation. 

Turning into a circular business and the importance of vehicle reuse and recycling.

The presentation will cover the work Volvo Cars is doing to achieve 2025 but mainly focus on the transformational work towards 2040 and the business and value chain changes being considered. Attention will be paid to the way vehicles are being dealt with at the end of life and the complexities of closing material and component loops. Opportunities and challenges which Volvo Cars is facing will be presented including engagement with 3rd parties and increasing pressure from stakeholders.

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