Speaker Greg Wittbecker, adviser at CRU Group, launched Spotlight on Aluminum: How Long Can the Light Metal Outperform? March 23 at ISRI2022 by highlighting some potential questions on attendees’ minds. These questions included how recycled metals play into the balance in primary metals outlook, how demand may hold up amidst inflationary pressures, whether the market will face demand destruction due to high energy prices, and how the war in Ukraine will impact the situation. Wittbecker and Dhawal Shah, managing director at Metco Ventures, set out to answer some of these pertinent questions. Andrew Vida, vice president at INTRAMETCO, moderated the session.
Wittbecker noted that one major change for the markets is the role of China. For the last 20 years, China was the largest consumer of primary and recycled aluminum markets but that’s no longer the chase. “China is no longer the biggest driver of what moves the [London Metal Exchange] price,” he says. “It’ll be driven more by what’s happening outside of China.” Other issues include the shortage of primary aluminum and the lack of U.S. investment in the primary metal. The last U.S. smelter was built in 1983.
Amid those concerns, people are turning attention to decarbonization and “low-carbon” primary aluminum. When Wittbecker hears that term, his response is simple. “We’ve been trading low-carbon aluminum for a long time, we just called it ‘scrap.’” Recycled commodities are getting attention among original equipment manufacturers that want recycled content in their products. Wittbecker noted that demand for recycled materials will continue rising. “Seeing that happen quickly will depend on sortation,” he explains. “Getting faster at sorting some of the obsolete grades and making them accessible.”
Within China, demand for primary aluminum is flattening out. “China is investing a lot of capacity to process more scrap,” he says. Wittbecker anticipates that while China will no longer demand primary aluminum, its demand for recycled aluminum will grow quickly. “Overall, these are trying times for the aluminum market but good times for the scrap market,” he adds.
Shah highlighted one of the major issues facing the industry is rising inflation. “I think the entire value chain is disturbed,” he says. “I agree that low inventories, high costs, and sanctions against Russia will all contribute to the fact that aluminum is in a tight spot.”
He discussed recycled aluminum flows over the last few years noting big diversions that have occurred since 2018 and 2019. “As a trader of aluminum scrap, I used to buy a lot from the U.S. so much that I started changing the way I pronounce aluminum,” he jokes. But that changed over the next two years as the U.S. turned from selling to buying. Shah says the same pattern is happening in Europe. “Europe has been an exporter of low-grade aluminum but in the last 6–8 months, a lot of its scrap is being processed, consumed, and transported within the EU and exporters have lessened.”
Two major trends that shifted the markets are the number of recycling facilities developing and expanding across Asia and growing government investment in recycled commodities. Shah described projects in India, South Korea, and Indonesia to build and/or expand recycling facilities. “Reducing carbon footprint has spurred the massive surge in aluminum production,” he says.
Shah anticipates government policies regarding higher thresholds of metal purity could affect the recycling business. “Indonesia and Malaysia are setting up higher thresholds for metal purity and new procedures for inspection of imports,” he says. “India is currently creating its own standards for all kinds of recycled commodities both imports and domestic.” He recommended exporters get a copy of the standards once they’re available.
“Overall, new investments and expanded capacity can trigger high demand for scrap,” Shah summarizes. “Countries and companies are looking more inward, which perhaps point toward economic nationalism … more scrap recycling facilities and expansion are happening everywhere. I feel great pride and happiness in being part of this industry.”
Photos courtesy of ISRI.