Follow the money

North American demand for aluminum scrap appears poised to accelerate, with numerous investments in melting capacity announced or underway.

auminum roll

Photo courtesy of Hydro
Photo courtesy of Novelis

Sustainability is a buzzword that has remained in the forefront on corporate websites for more than a decade, linked in many respects to decarbonization efforts. Those trends have contributed to a competitive, global market for aluminum scrap, with North American buyers positioning themselves to move to the forefront in that market.

The United States remains an aluminum scrap surplus nation, but the combination of decarbonization, a desire for shorter supply chains and the long-existing value proposition of melting scrap could reduce the size of the surplus aluminum scrap that is sold overseas.

Very few end markets for aluminum scrap are under threat, and those that could shrink are vastly outnumbered by end markets that are forecast to expand in North America and beyond.

Tried and true

The automotive, construction and packaging sectors consume a sizable majority of the aluminum produced in the U.S., according to the Arlington, Virginia-based Aluminum Association. Aluminum cans are thriving as a sustainable choice in the beverage packaging market. Although residential aluminum siding largely has been replaced by vinyl, construction applications continue to demand extruded aluminum.

Cast aluminum in the automotive market could decline as electric vehicles (EVs) gain market share over internal combustion engine (ICE) models. In North America, however, EVs are not elbowing ICE vehicles off the road in great numbers, and aluminum’s overall use in vehicles appears to be rising thanks to its greater use in body panel components.

The prospects for aluminum have led producers of many different scrap-content aluminum alloys for all three applications to invest in greater furnace capacity in recent years.

Norway-based Hydro plans to install scrap melting capacity in Cassopolis, Michigan, that will allow it to produce 120,000 metric tons per year of aluminum extrusion ingot that it will supply to the construction, automotive, transportation and consumer markets.

Hydro says 75 percent of the aluminum it will produce this year “will use postconsumer scrap or [be] green aluminum.” (The firm is likely counting some of the primary aluminum it makes in Norway using geothermal energy in that “green” category.)

In an email to Recycling Today in mid-January, Hydro states, “Europe has pushed sustainability initiatives steps beyond North America’s. However, 2022 is set to be the year U.S. aluminum manufacturers show real action on the ambitious ‘green goals’ they’ve set, [for] myriad reasons, including macro consumer values driving the uptick in EVs and an increased demand for sustainable metals (amidst a shortage) to support [President Joe] Biden’s infrastructure plan.”

Canada-based Matalco, a producer of recycled-content ingots, also announced new capacity. In March 2021, Matalco said it would build a 135,000-ton-per-year facility in Franklin, Kentucky, to produce scrap-content aluminum billets, slab or ingots.

In the automotive sector, EV sales accounted for just 3 percent of the U.S. passenger vehicle market in the first half of 2021, according to a report from PowerTechnology.com. For producers of cast aluminum engine components, the ongoing health of the ICE market and the relatively slow adoption of EVs by American car buyers means their furnaces are likely to stay heated well into the current decade.

The EV sector brings opportunities for other portions of the North American aluminum industry, with EV designers showing a preference for aluminum sheet as a body panel material, while aluminum extrusions increasingly are being used for battery enclosures.

The overall growth potential of aluminum in automotive applications spurred Atlanta-based Novelis to announce this January that it intends to invest $365 million in Guthrie, Kentucky, to add annual recycled-content casting capacity of 240,000 tons to make what it calls sheet ingot.

The investments provide stability for scrap demand but also a question in the minds of many scrap processors and consumers: If all this capacity comes online at roughly the same time, how will the market respond?

The looming challenges in the market are characterized by a Midwestern aluminum scrap buyer who tells Recycling Today, “We know demand has grown during the pandemic, and supply will take time to catch up.”

“We know demand has grown during the pandemic, and supply will take time to catch up.” – a scrap buyer based in the Midwest

A thirsty sector

The domestic consumption of used beverage cans (UBCs) by makers of aluminum ingots that are rolled to make new cans provides one example of the evolving supply-demand balance in North America for aluminum scrap.

Stay-at-home aspects of the pandemic heaped greater demand onto an aluminum beverage can and bottle sector that already was close to operating at full capacity because of sustainability factors favoring the packaging material.

The Midwestern scrap buyer, who requested anonymity, says the overall supply-demand balance in the UBC sector has been undergoing a noticeable shift. “In prior years, specifically with UBCs, supply outpaced demand, and UBC imports into the U.S. were severely reduced,” he says. More recently, he says, “With greater production of can sheet and domestic consumption of UBCs, this has strained the short-term balance of supply and demand, which could return us to seeing the U.S. being a net importer of UBCs.”

Money is being put into UBC melting capacity, including a $130 million investment by Novelis into its Oswego, New York, facility announced last October. Novelis says the investment will allow it to increase melt shop capacity by 124,000 metric tons at the plant in upstate New York.

Also last year, California-based Kaiser Aluminum increased its presence in the scrap market when it finalized its purchase of a UBC-melting facility in Warrick, Missouri, that formerly belonged to Pittsburgh-based Alcoa Corp. “Our Warrick rolling mill is one of only four dedicated rolling mills in North America for beverage and food packaging,” Kaiser President and CEO Keith A. Harvey writes in the firm’s latest sustainability report.

Beverage brand owners and can makers (such as Colorado-based Ball Corp. and Crown Holdings) have publicized sustainability goals for packaging in a way that seems poised to overturn earlier opposition to bottle bills or deposit-return systems. Decades of seeing sharply higher recycling rates in states with deposit-return systems are difficult to overlook. “Lower domestic recycling rates as compared to the rest of the world creates a tighter domestic scrap supply,” the scrap buyer says.

Last November, the Washington-based Can Manufacturers Institute (CMI) unveiled a set of goals that included foremost among them to “catalyze the passage and implementation of well-designed deposit systems at the state and federal levels.”

Such a bill would not necessarily be welcome by scrap processors, who prefer a competitive across-the-scale market for UBCs, but it likely would bolster an overall goal to bring more UBCs into the recycling chain.

The scrap buyer points to sustainability goals and claims as sometimes being problematic in the wider market. In the can sheet business, he says, some producers “claim a much higher recycled content” than they might have earned.

In the 5000 series automotive alloys sector, he says, “Manufacturers are demanding either increased recycled content from their suppliers or certificates that scrap generated in the auto industry is recycled content.”

This sometimes is leading to “closed loop” systems that do not allow scrap to be put up for bid.

Uncharted, but not unwanted

The upcoming years also could see secondary aluminum smelter and cast house operators diversifying their scrap blends to cope in a tight supply market.

“Regarding scrap demands to meet the recycled content targets, this forces many to think about being nimble or flexible when it comes to consuming ‘alternative scrap units’ to meet increased demand,” the buyer says. “We need to address the ability to switch scrap inputs in response to market changes.”

Alcoa, one of America’s largest aluminum producers, acknowledged this aspect of the market when it announced last November that it had been developing a process that “could create an entirely new value chain to economically produce aluminum of a quality that far exceeds the purity of the commercial-grade aluminum produced in a smelter.”

Alcoa says its new Astraea process can “purify any postconsumer aluminum scrap into a purity level of P0101, surpassing the purity of P1020 aluminum that is produced at any commercial smelter.” The company says there is “a vast supply of aluminum scrap that can only be used for limited applications due its combination of impurities.” It cites the shredded zorba grade as one example.

The attention of multinational companies such as Alcoa, Hydro and Novelis to melting more aluminum scrap in North America, combined with the established demand of specialist producers like Matalco, means processors and traders of aluminum scrap are poised to have a hungry market close to home in the decade ahead.

The author is the senior editor with the Recycling Today Media Group and can be contacted at btaylor@gie.net.

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