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US aluminium scrap demand climbs

Jun 16, 2022 | 08:26 AM |

Domestic and international demand for US aluminium scrap is climbing as producers of the light metal look to reduce their carbon footprint. Myra Pinkham reviews the dynamics of buoyant markets for secondary aluminium.

Even though the US aluminium scrap market is not quite as hot as it was earlier this year, marked by much month-to-month and even week-to-week volatility, it is widely believed that the longer term outlook continues to be very positive. That belief is supported by the amount of new US recycling capacity that several aluminium producers plan to bring online over the next few years.

“This is a very hot topic,” Beatriz Landa, Novelis North America’s vice president of procurement & recycling said, citing a continued strong demand pull both domestically and internationally for US scrap and aluminium recycling.

That was particularly apparent earlier this year when there was a strong run-up in US aluminium scrap prices, but they peaked at the beginning of March. Stephen Moss, vice president of Stanton A. Moss, said this was largely because of the headwinds of inflation, which has risen to a four-decade high, and its impact upon logistics and labor costs. “Also, capacity constraints at certain consuming industries have been slowing down the metals economy,” he said.
Joseph Pickard, chief economist and director of commodities for the Institute of Scrap Recycling Industries (ISRI), said that despite these challenges, “the big picture remains very positive for domestic aluminium recyclers,” noting that while the market is not quite as high as it was a couple of months ago, it is still elevated from a historical perspective.

“It is important to put the demand for aluminium scrap in the context of general aluminium demand,” Kelly Thomas, Alcoa Inc.’s executive vice president and chief commercial officer, said, noting that demand for aluminium is expected to grow for years to come as companies seek more sustainable raw materials to make their products and given that aluminium is lightweight, strong and infinitely recyclable. She added that it is an ideal replacement for plastics and heavier metals in a wide range of applications.
She also said that this supports aluminium scrap demand both because virgin aluminium is not able meet this growing demand alone, and because of the sustainability advantages of scrap. It uses material already circulating in the supply chain and requires 95% less energy than it takes to produce primary aluminium.

While the US economy, particularly manufacturing activity, has been on a bumpy path this year, ISRI’s Pickard said that overall domestic aluminium demand and therefore aluminium scrap demand is good. He added that one complicating factor has been volatility in the auto sector, in part due to supply chain issues. But he said that at the same time as North American auto production has been challenged by those issues, the amount of aluminum being used in vehicles, and notably electric vehicles, has been growing.

While there has recently been less demand for scrap from the auto sector, Geordie Wilkes, head of research of Sucden Financial, said that once the current supply chain issues, including the shortage of semiconductor chips, start to ease, auto-related demand should pick up again. But he said that is not likely to occur before the back-end of 2023.

At the same time, despite increased concern about a possible slowing of the US economy with the slightly negative GDP growth in the first quarter and rising interest rates, Pickard said that at least at this point US consumers are continuing to spend, which bodes well for aluminium and aluminium scrap consumption. Moss agreed, stating that he believes that if the US economy goes into a recession, it is not likely to be a very steep or long one.

International factors

There have been some shifts in international demand for US aluminium scrap. Pickard said that US exports of aluminium scrap – including of used beverage cans (UBCs) and remelt scrap ingot (RSI) – in the first quarter of this year were up by 4.3% from the first three months of 2021. Mike Stier, vice president of strategy and innovation for Hydro Extrusion North America, pointed out that is even with US exports being limited by both certain logistics issues, such as container shortages and limited vessel availability, as well as the import restrictions that certain countries – particularly China – have recently imposed.

While China’s National Sword regulations were eased late last year, John Mothersole, a director at S&P Global Market Intelligence, noted that it still requires a certain amount of processing of scrap to be done before it is imported into China.
China is no longer the No. 1 destination for US aluminium scrap, but No. 14 (see table), Pickard observed, with India being the top destination (with US exports up 41% year on year in the first quarter), followed by Malaysia, which is where a lot of US scrap, particularly grades such as Twitch and Zorba, is processed into RSI and then redirected to China. Both of those countries are re-evaluating their own quality thresholds and/or regulations, Pickard pointed out, noting that trade restrictions in Malaysia have been attributed to the 23% year-on-year decline in US exports to that country in the first quarter, although it remains the No. 2 destination for US aluminium scrap.

Pickard noted that India plans to take a more balanced approach towards revisions of its quality thresholds, with the country’s government looking to ensure that companies continue to have healthy scrap inflows to meet their needs while also incentivizing domestic scrap generation. A draft of India’s revised scrap standards is expected to be released within the next year.

Further market drivers

Pickard also noted that largely due to concerns about logistics many consumers, including North American companies, are looking to source their scrap closer to home than they did before the Covid-19 pandemic. Because of that, US aluminium scrap exports to Canada were up 45% year on year in the first quarter of this year and those to Mexico were up 11%.

Meanwhile, Sucden’s Wilkes said that the shift towards more environmentally friendly aluminium production, including increased investment in new aluminium recycling capacity, is supportive of long-term strength in aluminium scrap demand. “Not only are consumers demanding products that are less impactful upon the environment, but aluminium producers are demanding more recycled content in their products,” he explained. He also said that scrap is a good way to fill the void, with less aluminium coming into the US due to logistical bottlenecks and de facto restrictions on Russian and Chinese aluminium.

Aluminium is a special product when it comes to recyclability and sustainability, said Trond Gjellesvik, vice president of Hydro Metals North America, noting that about 75% of all the aluminium that was ever produced is still in use in vehicles, buildings, cans and other finished products. He said that, as part of their sustainability agenda, Hydro and other aluminium producers are looking to bring more scrap – including end-of-life scrap – into the recycling loop.
The International Aluminium Institute (IAI) notes that the industry needs to increase post-consumer scrap recycling by 55% over its 2018 levels by 2030 to achieve the industry decarbonization goals to limit global warming as outlined in the Paris Agreement. But according to Yang Cao, a Fastmarkets MB senior research analyst, current global post-consumer recycling rates are relatively low. He said that that if the aluminium industry proceeds with a business-as-usual approach, its carbon dioxide emissions could increase to 1.6 billion tonnes per year by 2050 from 1.1 billion tonnes per year in 2018.

While the US used beverage can (UBC) recycling rate, at about 45%, continues to lag that in many other regions of the world, Matt Meenan, a spokesman for the Aluminum Association, observed that in most industrial markets – including in the automotive and construction sectors – US aluminium recycling rates exceed 90%. Also, Novelis’ Landa noted that the Can Manufacturers Institute (CMI) recently announced a target to increase the US UBC recycling rate to 70% by 2030, 80% by 2040 and 90% by 2050, which is a plan that is being pushed by players throughout the supply chain. One aspect of that plan is the push for a federal, or at least more statewide, deposit bills, which she said could be very positive given that currently UBC recycling percentage rates in deposit states tend to be in the 80s, rather than in the 30s for non-deposit states.
Given strong demand, Hydro’s Stier said that currently aluminium users are still more focused upon getting metal than on its recycled content. “While the number of conversations around the scrap content of products has been increasing, at least in the US a fundamental shift in buying and decision activity based upon that is not yet very significant – although we believe that will be coming fast,” particularly with customers who are further up in the value stream, he said.

In preparation for this change, many major aluminium producers are offering more products with greater recycled content. For example, Gjellesvik noted that in mid-May, at its Commerce, Texas, plant, for the first time Hydro produced its CIRCAL® product in North America, although it has done so in Europe since 2018. The product contains at least 75% post-consumer scrap. He said that the company is looking to do so at certain other US plants as well – possibly in Henderson, Kentucky.

Recycling capacity investment

Other aluminium producers been making similar moves. For example, Novelis not only has several high-recycled-content products that are used in construction applications, but its Novelis Advanz™ automotive alloy, which has a 75% recycled content. Alcoa’s EcoDura™ has a minimum of 50% recycled content.

The shift towards greater recycled content, has not been without some growing pains, Moss said, noting that consumers are inspecting the scrap they receive more carefully because of concerns that its quality has been declining and that the push for “greener” aluminium, with a higher recycled content, means that more processing needs to be done. “It is just a question where that scrap will be processed – at the recycler or by the consumer,” in light of recycling investments being made by several aluminium producers.
Meenan observed that a large portion of the $3.5-billion in US manufacturing that the aluminium industry has committed or invested over the past year will go directly to added aluminium scrap recycling capacity, which is to come online over the next several years. One of the first will be for Matalco’s $53.5-million brownfield remelt rolling ingot facility, which is expected to begin producing recycled billet and slab later this year.

Several other recycling capacity additions are due to come online through 2025. Shortly after breaking ground on a $365-million, 240,000-ton per year recycling center in Guthrie, Kentucky, which will be supporting the company’s closed-loop recycling contracts with automakers such as Ford, Nissan and others, Novelis announced plans to build a $2.5-billion integrated low-carbon aluminium recycling and rolling plant in Bay Minette, Alabama, to service the beverage can and automotive markets when it comes online in mid-2025. Landa said that its “bulked up” recycling and casting section will enable Novelis to recycle about 15 billion more cans per year.

On April 20, Hydro broke ground on a $140-million recycling plant in Cassopolis, Michigan, which will be producing 120,000 tonnes of extrusion ingot and billet – mainly for the auto sector, but also for other end markets such as construction, truck trailer and recreational vehicles – when it comes online in late 2023. Gjellesvik said that Cassopolis will use a combination of end-of life and industrial scrap and some primary ingot and it will have the capacity to produce about 40,000 tonnes of Hydro CIRCAL per year.
Given such advantages as the cost differential to primary metal and aluminium producers’ desire to reduce their carbon footprint, Mothersole said that there will likely be yet more recycling investments.

Moss said that while he believes that anything that increases the use of scrap aluminium is a good thing, he questions how long it will take the scrap consumers to affordably get the quality that they need, given that he believes that there will be a big learning curve.

Technology advances

Both scrap processors and aluminium producers are making technological advances in recognition of the increased quality requirements and concerns about aluminium scrap availability by both domestic and international aluminium scrap consumers.

Wilkes said that, if commercialized, Alcoa’s ASTRAEATM scrap metal purification process could be a significant change for aluminium scrap, given that it is designed to convert shredded aluminium scrap into material with a high purity level.
Part of Alcoa’s recently unveiled technology roadmap for a pathway for aluminium decarbonization, Thomas said that this technology would produce metal with a purity level that is high enough to be used for most rolling mill and extrusion applications – even aerospace applications. Alcoa describe it as a proprietary process purifying any molten scrap to about P0101 quality level and note that, aside from the main target raw material of Zorba (auto shred aluminium scrap), any low-quality aluminium scrap can be considered as feedstock.

Currently operating on bench scale, ASTRAEA, which could be powered through renewable energy, uses a catalytic process to separate impurities from low-value scrap. Other existing processes such as smelter impurity control, fractional crystallization and a Hoopes (or 3-layer) cell are used to produce aluminium to different levels of purity (see chart).

Thomas said that the ASTRAEA technology is important, given the vast supplies of Zorba and other post-consumer scrap that are not currently being properly utilized. She said that it has the potential to turn an auto scrap yard into a significant source of value to create high-purity aluminium.
At the same time, to stay competitive, scrap processors themselves continue to invest in new separation, sorting and other technologies to raise the quality of the aluminium that they are processing and marketing, Pickard noted.

Some of the investments that recyclers are making is in technology to separate aluminium they have already recovered into different grades and alloys. Moss said that by creating different streams for their scrap that helps them to give their customers exactly what they need. “There will always be investment in new, better technologies,” he noted.
Even with such technologies, Pickard observed that everyone is asking whether as this new capacity comes online whether there will be enough aluminium scrap available to meet demand.

Moss said that currently there is plenty of aluminium scrap available and that should continue to be the case at least through the summer. Pickard said that general expectations are for aluminium scrap supply to get increasingly tight going forward. Sucden’s Wilkes said that could affect the amount of scrap that the US will be able to export, starting in 2023 or 2024.

“The outlook for the US aluminium scrap market looks pretty bright,” Mothersole said, especially given the aluminium industry’s desire to reduce its carbon footprint. Pickard agreed, stating that while it continues to face certain challenges, including labor and logistics issues, overall, the industry is in a good place.

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