Analysis: the compression of aluminum scrap is reshaping but continues

At an Institute of Scrap Recycling Industries (ISRI) commodity roundtable in the late 1990s, the president of a secondary aluminum company stated bluntly that his industry would be better served if primary aluminum producers “stayed away” from the aluminum scrap market.

In 2001, that same company president—Joseph S. Viland of Indiana-based producer Wabash Alloys, which has since sold—expressed the same thought in an interview with recycle today in the form of a prediction: “The toughest challenge the secondary industry has faced in the past 10 years – and will face in the next 20 – is that consumers of scrap at levels above foundries secondary influence both our market and enter our commodity market.

The activity of the 20 years that followed proved Viland right. For domestic secondary aluminum producers, perhaps the most immediate challenge in the 2000s was competition for scrap from foreign secondary alloy manufacturers. Increasingly, however, this offer has been joined by primary producers with high recycled content targets.

Statistics indicate that the United States is an aluminum scrap surplus nation. Buyers who source aluminum scrap for foundries and secondary alloy plants in the United States know this is the case, but the pressures of securing supply don’t make them believe that. ‘it’s like that.

A buyer from the Great Lakes region says that only the shortage of microchips that slows car production kept the market somewhat in balance in 2021 and early 2022. “What will happen when the chip problem will be behind us and the demand for vehicles will be 18 million [per year]?” He asked recycle today at the end of January. “Where does this metal come from? It can’t come from NASAAC [exchange warehouses]because it’s almost empty.

U.S. Buyer of Used Beverage Cans (UBC) Comments: “Lower National Recycling Rates [for UBCs] relative to the rest of the world creates a tighter domestic scrap supply and forces end users to continue scrap imports to meet demand.

Aluminum scrap exports to the People’s Republic of China may have peaked in the past decade, but demand from overseas buyers has changed, not stopped. According to the United States Census Bureau, U.S. processors and traders shipped approximately 1.85 million metric tons of scrap aluminum overseas in 2020. With 11 months on the books for 2021, the U.S. had already shipped 1.92 million metric tons.

Malaysia, India and South Korea have all overtaken China as high-volume buyers of aluminum scrap since last year. And even after a “green fence” (a curious term to use to pinch recycling activity) and a tariff war, China still bought more than 200,000 tons of aluminum scrap from the United States during of the first 11 months of 2021.

According to Viland’s prediction, continued interest in scrap metal 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 research late last year into smelting more crushed aluminum scrap, and mining company Rio Tinto is smelting scrap in Canada.

The pressure to decarbonize these multinationals seems to indicate that they are in the scrap market to stay. This new reality is not lost on scrap buyers recently interviewed by recycle today.

“Consumers are moving towards matching recycled content claims made by competitors, but some fall short of industry claims or targets,” says the UBC buyer. “In the automotive sector (5000 series alloys), manufacturers are either demanding an increase in recycled content from their suppliers or certifications that the waste generated in the automotive industry is recycled content.”

“As green initiatives and carbon taxes are implemented (starting in Europe and eventually in the United States), primary aluminum smelters are scrambling to add secondary scrap,” notes the buyer from the Great Lakes region. “Obviously the billet makers and the rolling mills have been doing this for years and increasing that percentage in their mix.”

Watching the market at the end of January, he added: “As the transaction price in the United States increases (which it has been doing for the past few weeks), you will see increased scrap pressure on secondary smelters. This will continue to widen the gap between low copper alloys and 380,” he predicted.

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

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