As Aluminum Market Sags, Spotlight Is on Scrap
Jun 9, 2014, 08:17 AM
November/December 1989
ReMA's Aluminum Roundtable had good news and bad news for the scrap aluminum industry. While prices have been down, aluminum scrap is expected to continue to be in high demand.
By Si Wakesberg
Si Wakesberg is a New-York-City-based consultant for the Institute of Scrap Recycling Industries, Washington, D.C.
There appeared to be unanimity on two things among a diverse group of speakers at the Institute of Scrap Recycling Industries's Aluminum Roundtable, held in September in Chicago: the aluminum market has been on a downward trend, and the demand for scrap from consuming sources will continue to be sharp and competitive.
Out in corridors where the nearly 500 industry members jammed to converse and conduct business, the general feeling seemed to be that business was still quite good. Speakers echoed these sentiments. "There has been some softening of the North American market directly related to interest rates but the general opinion is that business will remain decent," said one speaker. "Despite softness in aluminum ingot prices, shipment data clearly show that world aluminum demand in the first half of this year was very good." While all this may be true, one could not help feeling a note of apprehension among many of those attending the conference. Prices have been trending down: the Metals Week transaction price the week of the roundtable was approximately $0.82 cents a pound; last year at that time it was $1.13 a pound.
Speakers balanced the bad news with good news on the demand for scrap. Prime producers, secondary smelters, minimills, extruders, and foreign consumers all appear to be trying to get a larger share of the pie. Said one producer representative: "There will not be any additional primary aluminum smelters built in the United States, only eventual closures for obsolescense and/or environmental reasons. Therefore, the scrap recycling rate has to be increased to meet fabricated aluminum demand increases and domestic primary aluminum supply decreases. Japan and, more recently, Taiwan have increased their importation of aluminum scrap dramatically in the past few years," according to a secondary smelting official.
Market Near Bottom
"We have not hit bottom but should not be too far away," said Alan Klein, Hunter Douglas Metals, Inc., Homewood, Illinois, pointing out that "we have experienced a 38-percent decline in the price of primary aluminum in the Midwest from a year ago." Europe may no longer be dependent on the United States, he said, but if business is flat or down and demand less than supply, "the markets have to weaken everywhere."
The spread between prime and scrap aluminum is tightening "as scrap demand continues to increase at a faster, or decline at a slower pace, than primary," he said. "Scrap should be worth more in relation to prime than it was as recently as two to three years ago." In addition, Klein said, technology is still improving and "one can make a case for certain scrap items to be more valuable than prime."
Market Changes in the 1980s
"Primary aluminum producers did not take the LME [London Metal Exchange] seriously at the beginning of the 1980s. You can be assured they all take it seriously now." This was one item in a catalog of aluminum industry changes highlighted by Thomas R. Akers, Consolidated Aluminum Corp., St. Louis. Akers named five U.S. companies--Arco, Anaconda, Consolidated, Martin Marietta, and Revere--that stopped producing primary aluminum in the 1980s.
Pointing to used-beverage-can (UBC) recycling as a focal aluminum scrap source, Akers said that its tonnage rose from 1.0 billion pounds in 1980 to about 1.5 billion pounds in 1988, "making it the single largest aluminum scrap source." He noted industry plans to step up the UBC recycling rate from approximately 55 percent to 75 percent within the next five years. Akers said the all-aluminum can is "the best example of the viability of aluminum recycling. ...[UBCs] go directly back into the production of more all-aluminum cans--a pure definition of recycling."
Ingot Prices Coming out of Lows
"Aluminum ingot prices have probably seen their lows and should trade up over the next several months, and then ease in the closing months of 1989," said Stewart Spector, president, Spector Reporting, Inc., Hewlett, New York. He estimated LME ingot prices "will average 90 cents per pound [this year] and about the same level in 1990." During the 1990s, he went on, "we are likely to see more price volatility in the aluminum cash and futures market...[industry] will find it necessary to operate, to the extent possible, at full capacity through 1995."
Spector noted that world primary shipments in the first half of 1989 were up 4.5 percent from the same 1988 period and pointed out that secondary recovery's share of total aluminum consumption in the first half, especially in the United States, rose dramatically from 32.5 percent to 38.0 percent. In addition, he said, scrap processors reduced their inventories by more than 400 million pounds during the first half of this year. Now, he continued, there are signs of tightness in the scrap supply and processors are seeking to rebuild depleted inventories.
Secondary Smelters Squeezed
Caught between customers that are doing their own melting and alloying and suppliers that are "upgrading scrap by processing and, in many cases, melting scrap into solid form, secondary aluminum smelters are in a squeeze." So said Joseph Viland, Wabash Alloys, Wabash, Indiana. Furthermore, he pointed out, "the in-house scrap generated by primaries, instead of being sold to secondaries, has stayed in-house." Smelters also face competition from rolling mills and minimills in their expanded scrap use. As a result, he said, "we are forced down the scrap chain to poorer grades so that we can get a slight edge that we need to be profitable."
Wabash Alloys, which is projected to export almost 1.1 million pounds of aluminum scrap in 1989, also uses aluminum-lithium scrap. According to Viland, aluminum-lithium scrap should be segregated but can be safely recycled into foundry alloys using proper processing techniques. "We have recycled several million pounds of all forms--chips, borings, and solids--into casting alloys in the past year and a half," he said. Viland was optimistic about future use of aluminum in the automotive industry, noting that Honda's Ohio-made engines are aluminum, Saturn's engines will be aluminum, and Cadillac has an aluminum engine.
Extruders Look to Expanded Scrap Use
Extruders would use more scrap--because of its cost advantage--if they could be assured of on-time delivery, proper analysis, and quality material, according to James A. Stine, Cressona Aluminum Co., Cressona, Pennsylvania. His company uses 70-percent prime aluminum and 30-percent scrap, he noted, but would use more scrap under optimum conditions. On-time delivery is vital because the company wishes to keep inventories at a minimum. Packaging is also important; packages must arrive "dry and tightly bundled," he said. Perhaps most important of all, the scrap must meet the analysis agreed upon. Extruder customers, he noted, "are becoming more demanding and critical of the extrusions we supply them. ...This, in turn, requires us to be more critical in our scrap requirements. ...If we have purchased a 63/61 load of packaged extrusions, we don't expect to find any 7000, 5000, or 2000...if we do, it may ruin an entire melt." He added: "In the future, [traders, brokers,] and processors must identify the metal by alloy, and that can be done rather easily with the new hand-held spectrometers, or possibly a dye treatment.
A Minimill's View of the Scrap Market
Minimills are facing competition in their efforts to acquire scrap as feedstock to produce sheet. The competition comes from prime aluminum companies already operating large recycling facilities and from extruders seeking to expand their use of scrap. Point this out, Jerry Pollock, Barmet International, Akron, Ohio, said that "almost everyone in the industry has realized the value of aluminum scrap for energy savings." In addition, he said, foreign buyers during the past year were "paying anywhere from 3 to 5 cents a pound more than we felt the market should be, or what we needed to maintain adequate spreads between raw materials and our sheet selling price."
Because industrial scrap supply is declining and there is less of that scrap to go around, Pollock said, industry members will have to use lower grades of scrap and upgrade the material in order to continue to handle scrap profitably. "The outlook for the scrap market is one of tough competition for material, untraditional pricing, and a fresh look at some lower grades of scrap."
ReMA's Aluminum Roundtable had good news and bad news for the scrap aluminum industry. While prices have been down, aluminum scrap is expected to continue to be in high demand.