November/December 1994
…and even the strong don’t always survive when it comes to secondary smelters. A variety of pressures have converged on these key nonferrous consumers over the past two decades, forcing many plants to close and changing patterns of scrap flow. Where have the smelter been and where are they headed?
By Jeff Borsecnik
Jeff Borsecnik is an associate editor of Scrap Processing and Recycling.
There use to be a lot more of them around—familiar names in secondary aluminum smelting, brass and bronze ingot making, as well as secondary copper and lead smelting.
But the 1970s and 1980s saw a number of these relatively small but important segments of “smokestack America ” shut their doors, forced out of business by their more efficient competitors or absorbed by companies that saw consolidation and economies of scale as the keys to survival.
It’s easy to point to environmental compliance obligations as an explanation for the disappearance of these nonferrous consumers, and, indeed, many of the secondaries that went under could blame compliance costs, at least in part.
Yet the effects of the environmental movement have not been all negative for smelters and refiners. Secondary lead smelting, for example, is likely to grow thanks to ever-increasing pressure to recycle lead. (A similar scenario could be in the works for detinning; see “A Hot and Cold Relationship: Detinners and Steelmakers.”) And, at least in the opinion of veteran aluminum smelter Harry Gordon, retired vice president of Wabash Alloys (Wabash, Ind.), environmental rules have helped refiners of other metals economically. "We have learned how to take the last squeal out of the pig," he says, referring to greater efficiencies and less downtime resulting from the improved operating conditions required by environmental regulations.
Nevertheless, environmental compliance has generally posed difficulties for the secondaries, joining material choice changes, shifting competition for scrap, and technological developments as the common concerns facing these segments of the nonferrous industry.
But this may be where the similarities end, for the secondaries face differing problems and prospects.
Secondary Aluminum Smelters: Chasing Cars
The aluminum secondaries suffered a big shakeout during the last two decades due to narrow margins and tough competition, with their numbers falling from about 70 to 30. Still, a good part of the drop represents buyouts rather than closures. Consolidation has been encouraged by the fact that new capacity is extremely expensive-it's easier to buy an existing plant and, although key equipment is much more efficient than it used to be, it's also much pricier. For example, a few decades ago, a dryer to clean scrap turnings cost around $40,000 to $90,000, says Gordon. Today's larger systems that accomplish the same task run more like $2.5 million to $3 million.
Concerning Consumption. On top of these changes, demand for secondary aluminum ingot has been "pretty flat over the last five or six years, not including this year" (which has set records), says Gordon. Much of the reason lies in the domino effect related to domestic automakers' woes: As auto production has declined, there's been some consolidation among the die casters-key consumers of secondary aluminum ingot. Another shift is a trend among the largest die casters to produce their own alloy. This represents a "definite threat," says Gordon, though he notes that only the largest die casters can produce alloy economically.
Die casters, meanwhile, are calling for higher quality alloys, like 319, which is increasingly used in automobile engines, notes Irwin Becker, vice president of scrap purchasing for Timco (Fontana, Calif.). In addition, consumers are more and more interested in just-in-time delivery, with even the extreme case of delivery of hot metal becoming common. These trends, along with requests for pricing linked to the London Metal Exchange-part of an apparent long-term "internationalization" of aluminum-are prompting increasing sophistication of the secondaries, industry sources point out.
Prime Competition. The secondaries may be facing increased competition from the primaries, says Becker. "I would not be surprised to see the primary aluminum producers go into 319 as they are [already] into 356." But Gordon suggests the primaries will only be successful if the specific application for the alloy demands exacting physical properties, noting the primes are only in 356 "in a special way," such as alloy for wheels. In any case, he observes, "The primaries have consistently not been good in the secondary field. ... I think if any item can be made of scrap and prime as options, scrap will be cheaper about 90 percent of the time." Plus, Gordon says of the primaries, "With prime prices strong, they lose interest" in a product with relatively low added value.
Scrap Competition. Independent sheet mills, specialty houses, and even the primaries are competing for scrap that "in the old days went to the secondaries, which are getting only lower grades now," says Becker. Aluminum shredders and separation systems have allowed processors to now produce grades that can be used to produce common alloy sheet, he explains. "The scrap we're buying now is more contaminated, more heterogeneous, more difficult to handle than it used to be," says Gordon. "The good stuff is recirculated in-house and the primaries aren't selling much scrap in the open market-and what they do goes to die casters and others." As a result, Wabash is using twice as much obsolete scrap as it used to, prompting the company to focus on better sorting and processing methods.
Other changes in scrap flow have included a drop in military and aerospace scrap, especially on the West Coast, but substantial flow of metal from the former Soviet republics, which has also benefited other consumers, such as the brass and bronze ingot makers.
Brass and Bronze Ingot Makers: In the Midst of Material Changes
From a peak of around 45 brass and bronze ingot makers during the Korean War, the roster has dwindled to just 10 or so. "Loss of market, but more so the costs of complying with environmental regulations" have pushed ingot makers out of the business, says David Serls, chairman and chief executive officer of Colonial Metals Co. (Columbia, Pa.). "Several went bankrupt, but most just liquidated and decided this wasn't the business they wanted to be in" due to small profits and big hassles.
During the 1970s and 1980s, the volume produced by the ingot makers fell substantially-by perhaps a third-mostly because of replacement by plastic, aluminum, and stainless steel in housing applications and generally lower demand for high-lead alloys at a time when casting imports grew. While the production cuts and materials-substitution losses have leveled off, competition among the survivors remains "very stiff," according to Allan Silber, president of N. Kamenske and Co. Inc. (Nashua, N.H.). Serls agrees: "Everyone takes every order like it's going to be his last."
Alloy Changes. The near future for the ingot makers may be determined by environmental laws targeting lead-a key ingredient in brass and bronze-since about 65 percent of their products end up in castings for conveying water. (Other manufacturers, such as automakers, are also shying away from leaded alloys.)
Of course, replacement alloys that use bismuth, tellurium, and selenium instead are being developed, but such alloys, even if viable, are not compatible with today's plumbing alloys, which raises scrap concerns: Small amounts of these elements in the conventional alloy mix can be tolerated, says Silber, "but beyond that, it's a real problem because they change the physical characteristics of alloys." Compounding the problem is the fact that the new alloys aren't expected to look different, therefore requiring more sophisticated scrap analysis and sorting. Once any complete alloy shift takes place, notes Serls, copper radiators, long the ingot-making industry's favorite scrap, "will become nonusable due to their lead content of 8 to IO percent." (For more on this apparent trend, see "The Disappearing Copper Radiator?" in the September/October 1993 issue ofScrap Processing and Recycling.)
Leaning on Technology. Serls and Silber suggest the ingot makers will become increasingly involved in research and development of new alloys. Silber predicts a rise in the use of electric furnaces for engineering alloys, which could provide welcome high-value markets for the industry. These furnaces are designed less for refining than conventional furnaces, so they will require higher grades of scrap.
Other technical issues must be resolved by the ingot makers, including, especially, the need to find ways to remove lead from alloys and to improve handling of byproducts and coproducts of smelting to satisfy pollution control laws. Big challenges, but, on the bright side, Serls says confidently, "There's always going to be demand for copper-based alloys," noting their resistance to water pressure and salt water. "These things will keep us in business."
Secondary Copper Smelters: Survivors See Supply-Side Changes
Like their copper scrap consuming cousins the ingot makers, today's secondary copper smelters/refiners are few in number. In fact, over the past 15 to 20 years, virtually all the major East Coast secondaries have disappeared, including Asarco, Anaconda, Amax, and Phelps Dodge, as well as several brass mills. And the explanation is similar—largely because of environmental constraints, says Richard McKillop, a buyer for Franklin Smelting & Refining Corp. (Philadelphia) and former vice president of Amax.
While demand for electrolytic copper remains strong, the barriers to potential new facilities entering the market may be insurmountable, as was evidenced by Mitsubishi Materials Corp.'s surrender to project opponents in its bid to get permits for a new secondary smelter in Texas.
Long-Term Scrap Changes. The decline in secondaries meant fewer outlets for scrap processors. But, ironically, the loss of these smelters presented more opportunities in the long run, according to Richard S. Zampiello, vice president of operations for Schilberg Integrated Metals Co. (Willimantic, Conn.). "It forced the scrap dealer to be more sophisticated in upgrading and marketing material," he says, pointing to the new consuming outlets this strategy has presented to processors. "I used to believe if I had control of the last remaining smelter on the East Coast, I would have died a rich man. But I don't hold to that today." McKillop notes that the proliferation of chopper-shredders has given more processors the ability to upgrade scrap, providing them with wider choices of domestic and offshore consumers. "If Amax were around today, it would have difficulty buying sufficient feed," he says. "The material is still being generated, but it's not going to 'normal' outlets."
Other changes in scrap flow include: an apparent long-term drop in the available scrap supply, due in part to improved manufacturing efficiency; some substitution by the secondaries and brass mills of scrap in place of virgin metal; and a rise in the export market for lower grades in particular. This last trend doesn't trouble the secondaries, which now seek higher grades, says McKillop, noting: "We won't take 10 to 15 percent [copper] material today. The break point is usually 20 percent, and we're not even keen on 20 to 30." Why? Labor costs and environmental concerns, which increasingly dictate how scrap is handled, make taking low grades uneconomic.
Secondary Lead Smelters: Nobody Wants It—Except Under the Hood
Secondary lead, while on the run as an ingredient in many alloys, is in great demand for lead-acid batteries, and secondary lead smelters stand to grow-or else.
Domestic secondary lead smelting capacity recently took a big dip, falling from 1.3 million tons in 1980 to 800,000 tons in 1986, as environmental compliance costs, equipment obsolescence, and economies of scale squeezed a lot of the smaller smelters out of business. But that downturn has been turned around and capacity should be headed back to about 1.3 million tons next year, according to David Cook, a marketing consultant for Lake Engineering Inc. (Dumont, N.J.).
Reasons for this rejuvenation include major expansion among the large secondaries, vertical integration into battery recycling by three of the five major U.S. battery producers, and entry into the secondary field by one of the large primaries, Doe Run Co. ( St. Louis ), which built a secondary smelter at an idle primary facility in Missouri .
Primes Contract. Huw Roberts, a market analyst and director of Brook Hunt and Associates (London), notes that the primaries have rapidly been losing market share. In 1993, they accounted for 334,000 metric tons of lead production in the United States compared with 891,000 metric tons for the secondaries--a big switch from 1980, when the primes produced nearly twice as much lead as the secondaries. And, says Roberts, "I see very little chance for the primary sector to grow over the next decade." The likely result: The primaries will further expand into the secondary field. (They are already involved in recycling lead-bearing residues and drosses, he notes.)
Technological Solutions. The secondaries have become more sophisticated, employing new technologies to automatically separate battery components and smelt the grids and paste, sometimes separately. But they won't stop there if they know whit's good for them, says Cook. Demand for secondary smelting capacity will continue to grow, he predicts, based on growth in industrial and vehicle battery sales.
Cook also expects increased demand for lead-acid batteries in the early stages of electric car production, which must begin in earnest by at least 1998 under California law (and probably a few other states shortly thereafter). Although Roberts says the carmakers don't think lead-acids will satisfy their customers, Cook reports that significantly better alternative battery technologies are "years and years away," adding that lead-acids enjoy a big advantage over competing technologies in the form of a well-established recycling infrastructure.
But filling this new market requires increased production, and that's a problem. The secondaries have nearly maxed out their ability to expand at existing facilities using existing pyrometallurgical technology, and those that have tried to build at greenfield sites—even modem, low-emission plants "in the middle of nowhere"—have faced strident opposition, says Cook. Although the secondaries that have survived seem capable of meeting pending federal emissions regulations, that's at existing levels of production-and, sorry, that just don't feed the bulldog.
The answer to more capacity may lie in new technology, according to Cook, such as electrowinning, a no-emissions electrochemical recycling process currently under development. And the increasing centralization of battery recycling from collection through smelting to new battery production-while not favorable to scrap recyclers or small smelters-may hold the key to perfection of such alternative technologies to help the secondaries keep up with the game because today's bigger players may have the "resources and wherewithal" to make such major changes come about, suggests Cook.
A Hot and Cold Relationship: Detinners and Steelmakers
Detinning, though not smelting, is another recycling middleman that finds itself in the midst of change. The industry, which was burned in the 1970s by the rise of the all-aluminum beverage can, today finds itself in the midst of some major changes—perhaps even a comeback--based on two recycling trends: rapid growth in the supply of “tin” cans from municipal collection programs and increasing demand for ferrous scrap, especially low-residual steel.
Detinners chemically dissolve the tin coating from cannery scrap and used steel cans to produce No. 1 bundles, which are primarily consumed by steel mills (some of the metal is also used as “precipitation iron” in copper mining), and tin, which has many applications, including new tinplate, electronics, and chemicals.
Today, there are only a handful of domestic detinning facilities: four operated by AMG Resources Corp. (Pittsburgh) in the eastern half of the United States and two by Proler International Corp. (Houston) out West, plus MacLeod Metals (Los Angeles), which operates one relatively small facility.
Tinplate Supply. Although tinplate production has been roughly static for years, the volume of tinned cans suddenly available to AMG’s plants has outstripped capacity, according to Allan Goldstein, the company’s president and chief executive officer. Continued excess supply—read: not recycled—could mean long-term problems for the steel can, Goldstein warns. While the pressure to recycle cans is high, it’s only economical in areas with high population density and local steel production capacity.
Potential new uses for tinplate could also boost scrap supply, especially a new type of easy-open, all-steel can (conventional steel cans, which have ends made of a different metal, suffer something of a recycling disadvantage as a result) undergoing market tests in Europe. If this new package succeeds, it could triple demand for tinplate, says Goldstein.
Meanwhile, uncertainty over supply plus the high expense of putting in new capacity, in part due to expanded environmental obligations, limits the likelihood of new facilities entering the fray.
Mills: Consumers and Competitors. Steel mills can see tinplate as low-grade, somewhat contaminated feedstock or, once detinned, high-quality low-residual (if not very dense) scrap. Thus, they may hold the key to detinning’s future.
Leon Harbold, vice president of operations for Newport Steel Corp. (Newport, Ky.), points out that continuous casting negates some of the problems caused by tin (and other contaminants) in steelmaking, potentially increasing the mills’ appetite for cans, a relatively inexpensive scrap grade, especially when the scrap market is tight. In fact, he adds, detinned scrap, whose value he estimates at 50 to 100 percent greater than undetinned plate, is overkill for perhaps half of steelmakers’ products. It is, however, said to be ideal for scrap-based producers of thin slab and sheet looking for low-residual scrap, and the importance of such scrap is growing.
In any case, detinners have no difficulty selling their output. The big questions, says Ian Linton, vice president of western operations for Proler International, is whether they will be able to compete for tinplate scrap with the mills when the market is tight, which all depends on how badly the mills will want undetinned scrap. “That is unknown,” says Linton, “but to date, it’s not been a problem.”•
…and even the strong don’t always survive when it comes to secondary smelters. A variety of pressures have converged on these key nonferrous consumers over the past two decades, forcing many plants to close and changing patterns of scrap flow. Where have the smelter been and where are they headed?