hydro circal aluminum
Recycled-content or low-carbon aluminum, such as this Hydro CIRCAL, could benefit from new trading contracts.
Photo provided by Norsk Hydro ASA.

Does aluminum have a greener future?

Recycled-content aluminum could be poised to take better financial advantage of its low-emissions production methods.

August 5, 2020

The London Metal Exchange (LME) is involved in a healthy percentage of the world’s aluminum buying and selling, whether directly through its trading platform and warehouses or indirectly as a price setter.

Producers of recycled-content aluminum may have been encouraged to read in various media reports in 2019 and 2020 that the LME is considering new contracts for low-carbon emissions aluminum and for aluminum scrap.

Details on the potential LME contracts have not been disclosed, but according to a Reuters report, the low-carbon aluminum contract is intended to help producers meet sustainability goals, and possibly avoid over-reliance on primary aluminum made in China. According to that report, about half of global primary aluminum supply “is produced in China, where power is mostly generated by coal-fired plants.”

Breaking up is hard to do

The contracts, should they prove popular, could help spur a “decoupling” of secondary alloys and the aluminum scrap that goes into them from virgin or primary aluminum. While such decoupling is rare in the basic materials sector, the notion has backers, and some say they are already seeing decoupling in action in the plastics industry.

The demand for recycled-content clear polyethylene terephthalate (rPET) to produce closed-loop beverage bottles means the food-grade rPET price has “experienced a solid decoupling with virgin for the past few years, contrary to most other resins, which still mostly follow the virgin [resin pricing] trend,” says Max Craipeau of Hong Kong-based Greencore Resources Ltd.

Craipeau, who also is part of two committees of the Brussels-based Bureau of International Recycling (BIR), says a collection of regulations in Europe—spurred by household consumer demands for greater sustainability—helped create the rPET market pressures that decoupled it from virgin prices.

Aluminum scrap pricing relies on a series of discounts and premiums with spreads that can change, but scrap price reference points are firmly linked to primary aluminum prices.

If new LME or other trading contracts were to sever that link and allow scrap and secondary alloys to trade on a more open market, at least one industry consultant sees this as a way to override an existing shortcoming in how metals are priced.

Barry Sweet of New Jersey-based B. Sweet & Co. says the basic supply and demand scenario that underpins commodity pricing considers pollution (including CO2 emissions) a “free good” in economics, “and [thus] the true costs of production do not appear in accounting textbooks, and is missing from the ‘language’ of business.”

The sustainability and circular economy movements, in this context, can be seen as a long overdue reformulation of a model that has only priced in pollution in fits and starts, depending on the intermittent introduction of regulations.

Sweet says in the aluminum supply chain, buyers and sellers of both finished aluminum and the raw materials that go into it historically have not had an incentive to factor in the pollution practices of the entities with whom they are dealing. (In the “fits and starts” context, holding outside parties responsible in Superfund cases could count as a narrow and intermittent example.)

Producing aluminum from scrap can yield energy savings of as much as 95 percent, according to a 2007 study by a Danish university that was commissioned by United Kingdom-based Waste & Resources Action Programme (WRAP). Sweet says some of these energy and cost savings are “embedded in the intrinsic value of the scrap and in the cost structures of the collectors, processors and  secondary producers.”

He adds, however, “The negative values associated with the use of energy (pollution from large primary smelters, for example) is missing from the production side of the distribution chain, and conversely the positive value of less burning (lower emissions) also is missing from secondary recycling chains.”

A call for audience participation

Can an LME contract for low-carbon aluminum, or one for aluminum scrap, help overcome this difference? Sweet is skeptical, and both he and Craipeau point to a second factor that may need to be in place: requirements or incentives to use recycled materials.

On the plastics side, Craipeau, whose Greencore operates plastic recycling plants in Indonesia and Poland, calls Europe “a pioneer in such regulations, with a decree forcing PET bottlers to incorporate a minimum of 25 percent of rPET in their bottles by 2025 and 30 percent by 2030.”

Craipeau says this measure is welcomed by many EU residents. “This move, along with increasing [household] consumer pressure, has translated in practice with major bottlers in Europe already incorporating the 25 percent mandatory recycled content. Some bottlers already are incorporating up to 100 percent, as they realized there was a correlation between higher sales and higher recycled content.”

In the aluminum sector, recycled-content secondary alloys have long been part of the industry, but have not traditionally relied on a “green” household purchasing angle or government mandate to find end markets.

Pertinent to Craipeau’s point, one producer that is branding recycled-content aluminum is in Europe, in the form of Norway-based Hydro. The company’s President and CEO Hilde Merete Aasheim says, “We are positioning the company for the future [with an] aim to strengthen Hydro’s position as a leading sustainable industrial company, through our low-carbon aluminum, represented by Hydro Circal and Hydro Reduxa.”

In early 2020, the company referred to its recycled-content Circal aluminum as “currently one of Hydro’s fastest-growing segments.” Reduxa is what Hydro calls primary aluminum it makes that it considers to be low-carbon.

Sweet is uncertain whether such circumstances in Europe will soon arise in the United States. Should the LME’s “green” contract prove to be “a more expensive alternative to a normal contract, I don’t believe it will work well in the United States.”

He continues, “We are not that good at voluntarily complying for the greater good. It will work better in other parts of the world where there is less income disparity.” Sweet points to a “softer self-interest model like Northern Europe” (the home of Hydro) as such a place. In free markets everywhere, he adds, “There is natural tension between sustainability and unfettered capitalism, but they are not entirely mutually exclusive.”

Indeed, United States-based Alcoa, like Hydro, has introduced branded low-carbon and recycled-content aluminum products, in part to appeal to architects and contractors trying to earn LEED (Leadership in Energy and Environmental Design) green building points.

The company’s Ecodura aluminum billets are “made with a minimum of 50 percent recycled content, lowering energy usage by 95 percent,” says Alcoa, perhaps referencing the oft-cited Danish study. Alcoa’s Ecolum primary aluminum is produced at “predominantly hydro-powered smelters” that generate fewer CO2 emissions, according to the company.

An uncertain path forward

Sweet says the way forward is not easily determined and may not always be what scrap recyclers or secondary producers would endorse. While the “missing pollution values” may most often assist primary producers, Sweet says their absence is “not so apparent in many metal recycling sectors, because there is generally high enough scrap commodity value to allow each of the steps in the recycling chain to add enough value to their processes and keep the material flow moving.”

Continues Sweet, “But when the values of the recyclable materials are very low; or commodity prices suddenly drop; or cheap substitute materials become available; or loss of end markets appear; it will create friction to the flow of recyclable materials to the mills, and this slowing or stopping tends to highlight the ‘missing values’ that have not been considered.”

When it comes to aluminum, plastic or any other commodity, Sweet frames the question in a broader political and social construct. “My electric energy service provider offers a clean energy alternative to normal electrical service for an additional fee. My question is: Why is the choice that is less socially beneficial cheaper?”