Realigning for net zero

Primary aluminum suppliers are waking up to a new normal as global consumers become increasingly conscious about sustainability and their carbon footprints. This is especially true given the primary aluminum smelting process of turning bauxite into alumina, which is used to produce aluminum, is one of the world’s most energy-intensive processes. In fact, the International Energy Agency indicates this process accounts for 3 percent of the world’s total carbon emissions.

Many large primary aluminum producers started looking for viable solutions to this challenge years ago. Innovative technologies such as using inert anodes and renewable energy could be potent answers, but they are time- and cost-intensive. Still, one answer always has been readily available: aluminum recycling, a process that uses a mere 5 percent of the energy required to produce primary aluminum. The process of aluminum recycling has been around for a long time, but large aluminum conglomerates only recently have considered how meaningful it could be.

The U.S. aluminum dilemma

Energy or fuel accounts for up to 60 percent of the costs involved in producing primary aluminum. This makes the U.S. one of the most expensive markets to operate commercial-scale aluminum smelters, and the country has witnessed the primary aluminum industry decline while shifting its focus to imports.

A 2022 study by the Congressional Research Service clearly shows the trajectory of the U.S. primary aluminum market’s changes over the past four decades. According to the study, the U.S. was the world’s largest aluminum producer, accounting for 5.1 million tons in 1980, maintaining that position through 2000. However, the rising energy cost of smelting led to the downfall of this industry.

By 2021, U.S. annual production stood at 908,000 tons, accounting for 2 percent of the world’s output. Two years later, that figure had fallen to 750,000 tons, with one of the last three companies shuttering, and in January, Magnitude 7 declared it would permanently cease operations at its 263,000 ton-per-year primary aluminum smelter in Missouri. Similar events took place across Europe in 2022, shifting the focus to the more cost-effective but less carbon-sensitive Asian markets.

As of 2023, Arlington, Virginia-based Aluminum Association data show U.S. aluminum demand near 12 million tons per year. However, it is evident domestic primary aluminum cannot meet this need.

Two remedies exist: imports and secondary production. The latter has averaged 1.4 to 1.5 million tons from secondary scrap and 1.7 to 1.9 million tons from mill-grade scrap since 2019, according to 2023 data from the U.S. Geological Survey (USGS). However, these data also show a decline in primary aluminum imports, which, when viewed as a percentage of apparent consumption, fell to 44 percent in 2023 from 52 percent in 2022.

The USGS data also reflect a renewed focus by primary aluminum producers on using scrap as a key raw material. Aluminum recovered from purchased scrap in the U.S. totaled around 3.3 million tons, according to the USGS. Of this total, 55 percent came from new or manufacturing scrap and 45 percent from obsolete scrap. Moreover, the aluminum recovered from obsolete scrap was equivalent to about 38 percent of apparent consumption.

Hydro shows the way

Most of the multinational primary aluminum producers operating in the U.S. have understood the importance of recycling to cater to growing demand. Norwegian company Norsk Hydro is a pioneer in this field and changed the market’s opinion of recycled materials.

When the company bought the Sapa Group in 2017, it began to process alloys that previously were considered obsolete or unfit for high-quality aluminum products in the U.S. Hydro currently operates a staggering 27 plants across the country and continues to perfect the recycling process to include more scrap. Hydro’s Circal product line has between 75 to 100 percent recycled content.

In April 2022, the company invested $140 million to construct a recycling plant in Cassopolis, Michigan, to produce Circal extrusion ingots exclusively, and the unit began operations in November 2023. The plant aims to supply aluminum, particularly Hydro Circal, to the global and U.S. automotive market.

Hydro has set its target to process between 850,000 to 1.2 million tons of postconsumer aluminum scrap per year by 2030. “The investment into another greenfield recycler in Torija, Spain, was approved, with an estimated investment of 180 million euros to achieve this target,” says Anders Vindegg, head of group communications at Hydro. “The final building decision is expected in the second half of 2024. In total, the two plants will contribute an additional 240,000 tons in annual recycling capacity, including 110,000 tons of postconsumer scrap capacity [PCS].”

By the end of 2023, Hydro had reached 560,000 tons of PCS consumption capacity, achieving its 2025 goal of 520,000 to 670,000 tons. Additionally, the company’s recently announced joint venture with Holland, Michigan-based scrap recycling company Padnos enables upcycling 20,000 metric tons of PCS per year by industrializing Hydro’s proprietary sorting technology, HySort.

“We believe recycled aluminum will become a growing priority for most primary aluminum producers going forward due to economic, environmental and market forces,” Vindegg says. “Recycled aluminum production uses significantly less energy—95 percent less—and doesn’t require extraction of new raw materials, contributing to reducing greenhouse gas emissions and environmental impact. Recycled aluminum is a way of achieving reduced carbon footprint of aluminum products without compromising quality.”

Another example is Swedish primary aluminum firm Gränges, which has embraced recycling. (For more on Gränges America’s decarbonization efforts, see “Hitting its targets” here.) In the U.S., it operates a recycling center in Huntingdon, Tennessee, that began operations in 1967. In 2021, the company invested $110 million to expand its production capacity from 160,000 tons to almost 200,000 tons per year. Today, it boasts 43.6 percent recycled content rate and uses more than 200,000 tons of aluminum scrap across its facilities in North America, Europe and Asia.

The company is looking to reach 500,000 tons per year by 2030 and made one of its biggest moves toward that goal with the acquisition of Polish recycler Konin, which bolsters Gränges’ recycling capacity by 100,000 tons annually.

Enter the big boys

Aluminum producers like London-based Rio Tinto also have set their sights on recycling. It produced 3.3 million tons of the light metal in 2023 and plans to keep production stable through this year.

Rio Tinto’s smelters in Canada are vital suppliers to U.S. consumers. In July 2023, Rio Tinto formed a joint venture with the Giampaolo Group, also based in Canada, and purchased a 50 percent stake in its U.S.-based recycling company Matalco, which operates six facilities in the U.S. and one in Canada producing 6xxx series billets, along with 3xxx, 5xxx and 7xxx series secondary ingots.

This is Rio Tinto’s first step into the recycling world and hints at how scrap is becoming inevitable for clean primary aluminum to meet consumer demand today and in the future.

“The Matalco joint venture enables Rio Tinto to provide a broader range of high-quality and low-carbon, primary, recycled and blended aluminum products at a time when customers are looking to lower their carbon footprint as recycled aluminum is forecast to account for more than half of United States’ demand by 2028, according to a CRU Aluminum Market Outlook,” says Amy Abraham, vice president of sales at Rio Tinto.

The company also announced the creation of a new recycling center at its Arvida Plant in Quebec, which will process 30,000 tons of postconsumer aluminum scrap per year.

Several partnerships, such as Hydro-Padnos and Rio Tinto-Matalco, are forming to improve secondary capabilities. Gränges has signed a 10-year supply deal with Tennessee’s Scepter for remelt scrap ingots, and the largest primary aluminum smelter in the U.S., Century Aluminum, plans to work with St. Louis-based Metal Exchange Corp. to form the largest secondary aluminum billet factory owned by American entities. The plant will be in the Ohio Valley region with the capacity to produce up to 250 million pounds (113,400 tons) of secondary billet, and the partners aim to begin operations in 2026.

The U.S. Department of Energy also invested heavily in the aluminum industry this year, with grants totaling $650 million. Much of this investment will go toward Century’s green aluminum smelter project in the Ohio Valley, which is expected to double U.S. primary aluminum production. As for recycling, these grants extend to Constellium Ravenswood, which plans to set up the world’s first zero-emissions cast house that will allow the use of hydrogen in casting as well as maximize scrap use. Other awardees include Real Alloy, which is setting up an aluminum salt slag recycling facility in Wabash, Indiana, along with Golden Aluminum’s Nexcast process that reduces the use of natural gas in aluminum recycling.

These actions from some of the largest players in the aluminum industry beckon curiosity into why they believe adopting recycling was necessary.

“The past few years of much wider scrap spreads have made justifying the capex for such investments sellable to management teams,” Garey Rittenhouse, president of Tennessee-based Regional Metal Services, says. “In addition, the spreads for ‘nonconforming scrap grades,’ which historically could not be consumed directly, have made the proposition even more enticing.”

He notes mills have started including many more scrap grades that were considered unfit or obsolete previously as the focus on postconsumer scrap gains ground, and feedstock is another important factor.

“Several mills and primary aluminum smelters have a mismatch between their melting/casting capacity and their rolling/extruding capability,” Rittenhouse says. “Thus, leveraging partnerships or joint ventures with traditional scrap processors is the path of least resistance and lower risk for primary mills.”

In the rolling mill industry, primary aluminum usage can be adjusted depending on the quality of scrap used. In many cases, scrap with high aluminum yield can substitute for a portion of primary aluminum being used to meet specification needs for a certain rolling ingot or extrusion billet.

“Prime reliance is historically proven to be damaging to operational margins when exercised,” Rittenhouse says. “So, the answer is diversify the raw materials pool which can be sourced, hence the earlier noted capital expenditures in partnering with processors.”

Profitability also is an important factor. Primary smelters have noticed that several rolling mills that deal with large quantities of aluminum scrap have been cash-rich since 2020. This has spurred a triad of greenfield investments for the first time in 40 years. These include Aluminum Dynamics’ upcoming mill in Columbus, Mississippi, that will reach 900,000 tons per year at full capacity; Manna Capital’s 590,000 tons-per-year mill in Los Lunas, New Mexico; and Novelis’ Bay Minette, Alabama, plant that aims to produce 600,000 tons of can sheet annually. These investments total nearly $10 billion, with their combined capacity exceeding the U.S.’ domestic primary aluminum output almost three-fold.

Because recycling is a profitable business with a seemingly strong supply chain, it is not surprising primary aluminum producers want a piece of the recycling pie.

This transition is not limited to aluminum but has begun expanding into other nonferrous metals, too. Glencore, arguably the largest commodity trader globally, plans to double its recycled copper production to 200,000 tons per year, setting up new recycling facilities in Northfleet, England, as well as Arkansas. It also will upgrade and expand recycling capacities at its Horne smelter in Quebec. The motivation for these decisions possibly came from the success of copper recyclers such as Aurubis and Wieland.

Global aluminum demand is projected to rise 80 percent by 2050, and the industry is trying to achieve a 50-50 balance of recycled and primary metal to achieve net-zero emissions by 2050. Under such strict targets, the move toward secondary aluminum is the natural next step considering both the cost advantages and environmental benefits.

George D’Cruze is a U.S. aluminum market analyst at Davis Index and can be reached at george.dcruze@davisindex.com.