ISRI 2019 Commodities Roundtable Forum: Tariffs impede aluminum flow

Aluminum continues to be plagued by oversupply on the aluminum product side and the scrap side, according to speakers at the 2019 Commodities Roundtable Forum, hosted by the Washington-based Institute of Scrap Recycling Industries (ISRI) Sept. 11-13 in Chicago.

An overhang of primary aluminum continues to push pricing down for the metal, said Doug Hilderhoff of London-based CRU Group. He works out of the company’s Pittsburgh office as a principal analyst and head of North America aluminum research.

The same can be seen in the scrap sector within the North American market. Becky Proler, the president of Southern Core Recycling, Houston, said an excess of 6000 and 5000 series aluminum scrap from the automotive sector has dragged down the market. However, she added, “Nothing is as bad as it seems, and nothing is as good as it seems either.”

Proler said Southern Core has traveled a “strong and long learning curve” and “endless disappointments and rejections” from consuming mills since it installed a shredder to process auto parts with aluminum attachments a decade ago.

These days, she said she is “more concerned with constant chemistry than with price” as far as the company’s scrap is concerned and takes a disciplined approach to buying. “I believe that good product will pay off.”

Hilderhoff said recycling’s importance to the aluminum industry has been growing in 2019 as demand for sustainably produced aluminum products has grown. However, domestic market supply shocks, including the reduction in aluminum scrap exports from the U.S. to China, the “leaking” of automotive scrap from closed-loop recycling programs and the decline in domestic can sheet production, have created a scrap surplus, he said.

Regarding primary aluminum production, Hilderhoff said it would decrease in China by 0.5 percent in 2019 before increasing by 5 percent in 2020, according to figures from CRU Group. Outside of China, production will increase by 2.7 percent in 2019 and by 2.9 percent in 2020, while consumption will decrease by 1.1 percent in 2019 before increasing by 1.5 percent in 2020.

While he said China is reforming its aluminum sector, that will not translate to lower production. Instead, the country is shutting down older smelters and adding new, larger and more efficient furnaces. Hilderhoff said the country’s smelters should produce roughly 39 million tons of aluminum in 2020.

According to CRU’s analysis, the best case for aluminum pricing on the London Metal Exchange (LME) is that some sort of economic rebound will occur in 2020, Hilderhoff said. “I myself have doubts that will happen.” CRU is forecasting that the metal will end 2020 in the $1,900 per metric ton range.

“If the cost structure falls off, it could worsen that outlook,” he added.  

China also has been implementing quotas on its aluminum scrap imports. As of the end of the year, Hilderhoff said, the Chinese government will have permitted only 1.2 million tons of this material to enter the country. Before the trade war and China’s scrap import restrictions, the county used to import 70 percent of U.S. aluminum scrap exports. That figure is now at 20 percent, he added.

He said since China began levying a 50 percent duty on aluminum scrap imports from the U.S, “no scrap has been imported for general trade because it is too expensive.” However, U.S. scrap that is imported for tolling purposes is excepted from this tariff.  

India represents the best alternative market for U.S. exporters of aluminum scrap, Hilderhoff said, referencing estimates that suggest imports supply 85 percent of the country’s aluminum scrap needs.

Karsten Faak, recycling director at primary and recycling aluminum producer Trimet Aluminum SE, Essen, Germany, said the company produces 240,000 metric tons of recycled aluminum products annually using two smelters, consuming some 300,000 metric tons of scrap.

Almost 60 percent of the company’s production goes into the automotive sector, though Faak says demand from that sector is weakening.

The shift to electric vehicles likely will further reduce Trimet’s supply to the automotive market as these vehicles use fewer secondary aluminum castings.

Currently, secondary castings account for 56 percent of the aluminum used in vehicles, Hilderoff said. In battery electric cars, however, that figure will be reduced to 25 percent, reducing demand for twitch.

Proler was skeptical about the growth of electric vehicles, saying 2040 would be the soonest the necessary infrastructure would be available. She also raised concerns about the batteries used in these vehicles, saying manufacturers needed to be asked what they are planning to do to address these issues associated with end-of-life management.

In response to a question from moderator John Woehlke of JW Consulting, Brentwood, Tennessee, Hilderhoff said he did not believe China would change its position on scrap imports. “I don’t think there will be much change in that.”

Faak agreed, saying the country was protecting its market on the scrap side. In fact, he said he expected protectionism and tariffs to remain factors affecting markets for some time to come.

To survive the current market, Proler said scrap processors would have to be “flexible in your business plan and model.” She also said she believed the current situation would lead to innovation. “There is an opportunity for all of us to work together. If we silo ourselves, we are going to get in trouble.

“Better days are ahead,” Proler said, advising processors to remain in the market and look for new ways to handle material.