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US aluminum sector keeps on rolling along

Keywords: Tags  LME aluminum prices, Aluminum Association, Heidi Brock, Ducker Worldwide LLC, Noranda Aluminum, Layle K. Smith, U.S. aluminum market, Rio Tinto Alcan Norsk Hydro ASA

American aluminum demand and production are on the rise, helping the domestic industry weather the global storms that have slowed European and Chinese markets, industry leaders say. Furthermore, its unique position within the recycling world gives it additional advantages in the marketplace.

Preliminary estimates put total aluminum demand (shipments by domestic producers plus imports) in the United States and Canada at 7.68 billion pounds in the first four months of this year, a 6.6-percent increase from the same period in 2011, according to the latest available data from the Arlington, Va.-based Aluminum Association, while apparent consumption (demand minus exports) climbed 9.2 percent to 6.43 billion pounds in the same comparison.

“Because of aluminum’s low weight and durability, people are turning to it for new and innovative applications,” said Heidi Brock, president of the Aluminum Association. “The North American aluminum industry is growing to meet this demand.”

Gains weren’t limited to year-over-year comparisons. Production in March and April showed month-on-month increases after slipping in January and February following two years of continuous upward momentum. “While most markets are holding steady or beginning to look up, the key drivers are the transportation and electrical sectors,” Brock said. Electrical wire and cable used in building applications and electrical transmission increased 28.8 percent in the first four months compared with a year earlier. “Aluminum’s high conductivity and low weight make it the material of choice for power transmission lines,” she said.

A Ducker Worldwide LLC report said that aluminum’s share of the automotive material mix is expected to double to 16 percent by 2025. “The transition to aluminum in the automotive sector is being driven by efforts to increase fuel efficiency,” Brock said. “Downweighting with aluminum increases fuel efficiency and performance while maintaining the highest level of safety.”

The Aluminum Association numbers and Ducker’s analysis were released in mid-June at around the same time as AMM’s second annual Aluminum Summit in New York, where industry leaders said that slowdowns in European and Chinese economic growth had not significantly dampened the U.S. aluminum sector, which remains relatively robust in terms of both physical demand and regional premiums despite weak London Metal Exchange prices.

“We touch a lot of the very basic markets in the United States, and from our perspective we think our experience supports the belief that there is strong demand in the U.S.,” Layle K. “Kip” Smith, president and chief executive officer of Noranda Aluminum Holding Corp., said in a roundtable discussion at the AMM conference. “My optimism is founded first on the strength of our demand,” Smith said, citing a pickup in the Franklin, Tenn.-based aluminum producer’s first-quarter results. “Typically, we have a seasonal uptick in demand. If anything, we saw the seasonal uptick start sooner in our key market segments (in the United States).”

Jean Simon, president and chief executive officer of primary metals at Rio Tinto Alcan, agreed that the United States is a particularly strong spot in the Montreal-based miner’s global portfolio. “The U.S. is quite resilient. ... If you look at the last six months, the improvement to the growth in the economy is much better than anybody might have expected,” he said. “There are some signals it might slow down a bit, but we’re still confident in the U.S. economy. Growth will continue, but maybe at a slower pace.”

But while the U.S. market appears to be experiencing an upswing in demand—which, along with swelling warehouse stocks, is contributing to a run-up in Midwest premiums—the overall aluminum price remains low. “What we have seen is quite positive. Demand is quite strong, even if the price is not where we’d like it to be,” Simon said.

Smith agreed. “I’m more optimistic about demand in the U.S. than price,” he said.

The lower aluminum price appears to be partly the result of growing apprehension among investors, who today are less confident in commodities compared with “less risky” assets, such as the U.S. dollar, Simon said. “(With) what we have seen with the sovereign debt crisis in Europe and also with the slowdown in China, this has (encouraged) the global investment community to go less into the risky assets.” Weak physical demand in Europe and the “soft landing” of the Chinese economy have not helped global sentiment either, he said.

Nonetheless, Rio Tinto Alcan remains slightly upbeat in the mid-term, even on a worldwide scale, Simon said. “Globally, if we look at the next six to 12 months we are confident but cautious.”

Oliver Bell, executive vice president of rolled products at Oslo, Norway-based Norsk Hydro ASA, agreed, noting that while aluminum demand has slowed in Europe, real buying is still taking place. “I believe the customer has worked down their inventory to a level which is sustainable. So every order that’s coming is really fulfilling demand,” he said. “In general, we have all reasons to be positive.”

Bell told the conference that Norsk Hydro believes global demand for flat-rolled products will grow at a compound annual rate of 6 percent between 2012 and 2016 while flat-rolled capacity will grow at an 8-percent rate. Global demand for flat-rolled products will rise to around 25.4 million tons in 2016 from 20.1 million tons in 2012, with Chinese demand accounting for nearly 3 million tons—or nearly 57 percent—of the anticipated growth. “It’s
very clear that China is the driving force. If you deduct China, it’s a little more moderate—just 4 percent,” Bell said. “It’s all about China.”

An increase in flat-rolled capacity will more than compensate for the higher demand, Bell said. Hydro forecasts that global flat-rolled capacity will rise to around 38.6 million tons in 2016 from some 28.2 million tons today, with China accounting for some 8.1 million tons of flat-rolled capacity growth.

The United States’ aluminum industry produces about $40 billion in products, including exports, per year, according to the Aluminum Association. Aluminum is one of the few products and industries remaining in the United States that truly impacts every community in the country, either through physical plants and facilities, recycling, heavy industry or consumption of consumer goods, Brock said, adding that “in terms of both its positive economic and environmental impact, the aluminum industry remains one of our most significant national and international success stories.”

“The U.S. aluminum industry is a great example of an industry providing a positive economic impact while mitigating negative environmental impacts,” Charles Johnson, the Aluminum Association’s vice president for environment, health and safety, testified in June before the House of Representatives’ environment and the economy subcommittee on a draft bill, “The Increasing Manufacturing Competitiveness Through Improved Recycling Act.”

“A more-robust understanding of the quantity of materials in the solid waste stream provides industry and policymakers with the most appropriate data to develop solutions to increasing the U.S. recycling rate,” Johnson said of the proposed legislation, which would facilitate the collection of better waste and recycling data. “There are many proposed solutions to increasing recycling in America, but industry and policymakers need data to best understand which method is best.”

Johnson said that the U.S. aluminum industry believes recycling is a source of sustainable, private-sector-driven green jobs; that recycling is a vital part of energy efficiency and should be part of the United States’ energy solutions; that the collection of better waste and recycling data will allow consumers, policymakers and the industry to more rapidly achieve a higher recycling rate; and that increasing recycling will further benefit the industry, improve sustainability, contribute to the country’s energy efficiency goals, decrease solid waste in landfills, and create jobs.

“In 2010, Americans recycled $1.6 billion in aluminum cans. If the industry’s beverage can recycling goal of 75 percent was achieved, the payback to American consumers would be $2.1 billion,” Johnson said. “Aluminum’s infinitely recyclable nature means scrap metal has high value, and the processing and recycling of the metal yields a significant impact on the economy and in job creation. Because aluminum recycling saves energy, recycling jobs are green jobs.”

Marketing trends are leading all recycling industries to take more recycled materials, but the material is not always available, he said, adding that the U.S. public demands more environmentally responsible solutions. Walmart, Target and many other retailers are demanding increasingly sustainable packaging that has significantly less impact on the environment. Those demands are part of a larger shift in consumer preferences that is becoming as important to industry as access to raw materials, Johnson said.

“In 2009, 87 percent of the energy consumed by the North American aluminum industry was offset by energy savings achieved through the use of aluminum to make automobiles and light trucks more fuel efficient,” he said. “Similarly, in 2009 92 percent of the aluminum industry’s cumulative greenhouse gas (GHG) emissions could be considered to be offset by GHG emission reductions achieved by increasing aluminum content in the transport sector. Automotive aluminum represents only 26 percent of North American sector shipments. Aluminum’s use in other sectors, including building and construction, consumer durables, electrical wiring and packaging, imparts greater energy and emissions saving through the material’s use-phase and helps to neutralize industrial energy usage and emissions.”

Johnson also said:

• The metallic, elemental nature of aluminum means that it is infinitely recyclable. It can be recycled over and over with no loss of quality. In fact, 75 percent of all aluminum produced since 1888 is still in use today. Recycling aluminum saves 95 percent of the energy associated with primary aluminum production and emits only 5 percent of the greenhouse gases.

• Aluminum recycling provides a massive opportunity for energy efficiency. The recycling of one aluminum can saves enough energy to power a 100-watt light bulb for four hours. In the aluminum industry, recycling directly translates to energy savings. The metal in a beverage container can be thought of as solid energy; recycling saves that energy each time it is reused instead of sending it to a landfill.

• In the simplest form, the business case for increasing aluminum recycling is based on the fact that increasing recycling will increase energy efficiency. The aluminum industry’s position in favor of recycling is not “greenwashing”—it’s green business.

• Over the past 20 years, the North American industry has lowered energy usage 17 percent and greenhouse gas emissions 42 percent related to primary production. During the same period, recycling energy requirements and greenhouse gas emissions have gone down about 60 percent.

“Based on our interactions with recycling experts, waste haulers and municipal recycling facilities, we know that better information leads to more-efficient recycling that maximizes environmental gain and material efficiency while minimizing collection and reclamation costs,” Johnson said. “The most widely recognized application for aluminum is the beverage can. The can is the most recycled beverage container in America. In an average aluminum can, 68 percent is recycled content, the highest amount of any beverage container. The metal’s infinite recyclability and high value means a beverage container goes from recycling bin and back to store shelves in less than 60 days.”

The aluminum industry has set itself a goal of reaching a 75-percent aluminum can recycling rate by 2015, Johnson said. “We are engaged in various initiatives, including establishing and funding a new organization called the Curbside Value Partnership with other material manufacturing organizations and makers of packaging products. Curbside Value Partnership works with municipalities to increase consumer participation in existing recycling programs. Our evaluation of the program indicates that it routinely results in a 17-percent increase in household participation, translating into a 22-percent increase in tons of recycled materials. Data generation and analysis, a requirement that must be carried out as part of the program, is a key to that success. Cities must implement a tracking system to better understand what material is coming back and (is) reintroduced into a new, useful life.”

A robust materials tracking and data-gathering system is necessary due to the complexities of material recycling value chains, Johnson said. For example, differences in material weights and scrap values complicate consumer behavior choices. Aluminum’s high strength and low weight, as well as its corrosion resistance, allow for an increasing range of use. Measuring recycling by commingled weight undercuts the full benefit of aluminum recycling to the environment and its subsidizing role in most curbside programs.

“The aluminum industry is committed to increasing recycling because an increased recycling rate is good for business and good for the environment. Recycling is key to the sustainability of the aluminum industry in an economic and environmental context. Recycling efficiencies should also be a key consideration in our country’s energy strategy,” Johnson said. “For these reasons, the aluminum industry is ready to work with (the Environmental Protection Agency) to improve our understanding of the waste and recycling streams.”

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