Aluminum scrap squeeze reshapes but continues

Features - Aluminum Scrap Market Report

The line between primary and secondary aluminum producers is fading fast.

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February 28, 2022

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At a late 1990s Institute of Scrap Recycling Industries (ISRI) Commodity Roundtables event, the president of a secondary aluminum company stated bluntly that his industry would be best served if primary aluminum producers “stay the hell out” of the aluminum scrap market.

In 2001, that same company president—Joseph S. Viland of since-sold Indiana-based producer Wabash Alloys—expressed the same thought in an interview with Recycling Today in the form of a prediction: “The most difficult challenge that the secondary industry has faced in the last 10 years—and will face in the next 20—is that consumers of scrap at levels above secondary smelters are both influencing our marketplace and entering our marketplace for raw materials.”

Activity in the ensuing 20 years has proven Viland correct. For domestic secondary aluminum producers, the most immediate challenge in the 2000s might have been competition for scrap from overseas secondary alloy makers. Increasingly, however, that bidding has been joined by primary producers with lofty recycled-content targets.

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Statistics point to the United States being an aluminum scrap surplus nation. Buyers procuring aluminum scrap for foundries and secondary alloys facilities in the United States know that’s the case, but the pressures of securing supply do not make it seem that way.

A buyer in the Great Lakes region says only the microchip shortage slowing down auto production has kept the market somewhat in balance in 2021 and early 2022. “What is going to happen when the chip issue is behind us and the demand for vehicles is 18 million [per year]?” he asked Recycling Today in late January. “Where does that metal come from? It can’t come from NASAAC [exchange warehouses] because that is nearly empty.”

A U.S.-based buyer of used beverage cans (UBCs) comments, “Lower domestic recycling rates [for UBCs] as compared to the rest of the world creates a tighter domestic scrap supply and forces end-users to pursue scrap imports to satisfy demand.”

Aluminum scrap exports to China might have peaked last decade, but demand from overseas buyers has shifted, not ceased. According to the United States Census Bureau, U.S. processors and trades shipped about 1.85 million metric tons of aluminum scrap overseas in 2020. With 11 months in the books for 2021, the U.S. already had shipped out 1.92 million metric tons.

Malaysia, India and South Korea all have surpassed China as large volume buyers of aluminum scrap as of last year. And even after a “green fence” (a curious term to use to pinch recycling activity) and a tariff war, China still purchased more than 200,000 metric tons of aluminum scrap from the U.S. in the first 11 months of 2021.

Per Viland’s prediction, the continued interest in scrap from companies once considered primary producers has gained momentum. Atlanta-based Novelis continues to pursue an aggressive recycled-content goal, as does Norway-based Hydro. Pittsburgh-based Alcoa revealed late last year its research into melting more shredded aluminum scrap, and mining firm Rio Tinto is melting scrap in Canada.

Pressure to decarbonize by these multinational producers seems to indicate they are in the scrap market to stay. That new reality is not lost on the scrap buyers who Recycling Today recently interviewed.

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“Consumers are moving toward matching recycled content claims made by competitors, but some are lower than industry claims or targets,” the UBC buyer says. “In the auto business (5000 series alloys), manufacturers are demanding either increased recycled content from their suppliers or certificates that scrap generated in the auto industry is recycled content.”

“As green initiatives and carbon taxes get implemented (starting in Europe and ultimately ending up in the U.S.), the primary aluminum smelters are scrambling to add secondary scrap,” the Great Lakes region buyer says. “Obviously, the billet makers and rolling mills have been doing it for years and are increasing that percentage in their mix.”

Observing the market in late January, he adds, “As the U.S. transaction price moves up (which it had been doing those past few weeks), you will see more scrap pressure on secondary smelters. This will continue to grow the gap between low-copper alloys and 380,” he predicts.

The UBC buyer—a veteran of the industry, as is the other buyer—sees several possibilities ahead. The state of the current market “forces many [furnace operators] to think about being nimble and flexible when it comes to consuming ‘alternative scrap units’ to meet increased demand,” he comments. The scrap buyer concludes, “No doubt current markets are and will continue to be dynamic as new capacity adjusts to scrap demand. Just look at present spreads and supply versus one year ago.”

 

The author is senior editor with the Recycling Today Media Group. Contact him at btaylor@gie.net.