Dislocated aluminum

When is good news in the industrial and automotive sectors bad news for metal recyclers? When it causes a temporary dislocation in the market, and that is the current case in the aluminum arena.

In fact, the booming auto industry has created a huge amount of closed-loop aluminum scrap. With manufacturers recycling their internally generated material, demand for aluminum, including 5052 and 3003 grades, that comes from outside that loop is stunted. Mills are not buying the volumes many in the recycling industry anticipated.
 

Not flowing so freely

“There is a lot of scrap out there, and not enough demand to place it all,” says Matt Kripke, president of Kripke Enterprises, Toledo, Ohio. The company brokers scrap nationwide, and he says Kripke Enterprises has seen a great deal of additional automotive sheet coming into the marketplace.

Tied to that pressure is the general slump in metals across the board. “As the prices of other metals go down, aluminum is dropping along with them,” says Jim Schrock, owner of Earthworks Recycling Inc., Spokane, Washington. “It’s not as dramatic as, say, copper … but we’re definitely getting less trade in the door.”

Kripke says he does not have that problem. “Flow is good.” While he says he is aware some dealers say that ferrous scrap has slowed beyond the usual winter seasonal change, he has not seen that happen in aluminum.

“Maybe some people want to sit on their steel, so their need to move aluminum becomes more pressing,” Kripke says, noting cash flow issues may be at work in this decision.

Eventually, Kripke says, some slowing will be seen in the consumer and retail grades. Right now, however, the alloys and industrial grades are pretty busy and his flow is good.

That leads him to believe the aluminum scrap market is moving in the opposite direction of the ferrous scrap market, he says. In fact, Kripke says he has seen some of his company’s long-time net-30-day customers asking for discounts.

Schrock says he believes the market got used to the sky-high prices of a couple of years ago. Just when it adjusted to the lower prices that ruled the market, aluminum dropped again, and with that drop went the enthusiasm.

“We are seeing a drop in volumes through the door and a drop in excitement at the mills,” says Mitch Goldberg, owner of Northeast Metal Traders, Philadelphia.

With the huge snowfalls along the Atlantic Seaboard this winter, it became difficult to tell just what effects were dominating the aluminum scrap market. Michael Dorfman, vice president of State Metal Industries, Camden, New Jersey, says scrap flow was so stunted by the weather that it was difficult to say what the underlying causes of reduced product movement might be.

“Domestic demand is decent,” Dorfman says. But with a flood of potential sellers on the international market and limited outlets for aluminum scrap beyond the United States, the longer-term outlook might be less than rosy.

Goldberg says he sees a widening of spreads and deadlines being pushed out further and further. “The need at the mills is not as strong as it was. Manufacturing is up, but they are using in-house scrap and not reaching out for loads.” That is a continuation of a trend that has built for the past decade.

He says the tough winter weather had little to do with the weak market. “That started a month before the snowstorms,” Goldberg says, “and the situation was the same in Florida and the Carolinas, where it was much warmer.”
 

The situation abroad

It’s an interesting, if somewhat different, story on the international scene.

“We are starting to see foreign competition on the sales side,” Dorfman says. “We’re getting offers (to sell scrap into the U.S. market) from Europe and South America that we haven’t seen in years.” With China’s presence as an international buyer greatly reduced—the Chinese have been less aggressive buyers of late—the price pressure is building.

None of the sources contacted for this article is optimistic about the Chinese bouncing back into the market in a bullish fashion. And, even if buyers for Chinese consumers had gotten aggressive early in the year, it was doubtful that they easily could have booked scrap shipments—including aluminum scrap shipments—from the West Coast. Last summer, while not totally unanticipated, came the contract negotiations for longshore workers on the West Coast, which led to a slowdown in activity at the ports.

Schrock says the slowdown in work at these ports damaged fiber and cardboard shipments more so than those of aluminum scrap, but the port issues hurt everyone. Those exporting agricultural commodities were especially hard hit, leading the government to step in to resolve the issues. The stalemate between the International Longshore and Warehouse Union (ILWU) and Pacific Maritime Association (PMA) led to massive congestion at West Coast ports.

Resolution of the contract negotiations, which affected 29 West Coast ports, will have a positive rebound effect on recyclers as well as on farmers, sources say. Keep in mind that material will flow in from foreign ports as well as out to international destinations.

“The United States is where all the action is right now. The problem is that we will fill up pretty fast, and there will be an abundance of material,” Dorfman predicts. “There is an excessive amount of scrap out there,” he adds.

A sense of desperation is forming to get orders for scrap. “That could bring the markets down,” Dorfman adds.

Imports declined a bit according to the latest report from The Aluminum Association, Arlington, Virginia. “It is unclear where that is going,” says Matt Meenan, director of communications with The Aluminum Association.

Goldberg says China’s slowdown in buying has been notable.
 

Upon further review

At home, recyclers are doing their job of collecting aluminum scrap and getting it back into the manufacturing stream. The Aluminum Association likes to point out that nearly 75 percent of all aluminum produced is still in use today.

Across North America, including Canada, the industry recycles about 5 million tons of aluminum each year, most of which directly goes back into the North American supply.

UBCs (used beverage cans) currently represent a bright spot for those processors handling aluminum scrap. Schrock says the UBC market tends to be the most steady part of the aluminum trade for Earthworks Recycling, much more so than extrusions, cast or sheet. “Cans don’t see as much change,” he adds.

The challenge for independents in the Northwest has been the success of UBC recycling at the curbside. “The last 10 percent is where you make your profit,” Schrock says. “As the curbside programs take a wider variety of materials from homes and businesses, you are dividing your overhead by fewer pounds.”

Aluminum beverage cans are once again the most recycled beverage packaging type in the United States with an industry recycling rate of 66.7 percent in 2013, according to new data from The Aluminum Association, Can Manufacturers Institute (CMI) and Institute of Scrap Recycling Industries (ISRI). This marks the third consecutive year the rate has held above 65 percent compared with an average rate of 54 percent reported during the previous decade.

The new recycling rate means that, in 2013, the industry recycled 1.72 billion pounds of UBCs—the equivalent of 60.2 billion cans. A recycled aluminum can becomes a new can in less than 60 days. UBCs can be infinitely recycled in a continuous closed loop.

With UBCs fetching 75 cents per pound in commercial lots and as much as 81 cents per pound in some locations (but as little as 45 to 50 cents for small lots in the Northwest and Midwest), it is little wonder that recycling of UBCs is strong.

Much of the growth in recent years has come from the addition of imported UBCs entering the U.S. recycling stream. Because of aluminum’s high inherent value and the closed-loop recycling process of can making, U.S. scrap consumers often import used cans from Canada, Mexico, Saudi Arabia and other countries. While the number of imported cans decreased slightly from 2012, the number of cans recycled by U.S. consumers increased slightly, offsetting that decline.

In fact, a new life cycle impact assessment study by The Aluminum Association on UBCs specifically excluded imported aluminum beverage cans from its figures. That new study, completed in December 2014, updated the classic 2010 life cycle impact assessment, which did include imported UBCs. The earlier study calculated an industry recycling rate for aluminum recycling that included all UBCs melted in the United States, regardless of where they came from. So, UBCs generated in Mexico or Morocco and imported into the U.S. would be included in the U.S. totals.

The new study uses the consumer recycling rate. That figure is based on domestic UBC recycling as a percentage of UBCs shipped in the previous year, The Aluminum Association says. For recycling operations, the difference might be somewhat academic. However, for state recycling coordinators and others who base the success of programs on accurate figures, the new system is more representative of real world recycling of UBCs. The new study puts the recycled UBC figure at 70 percent—and a 70 percent recycling rate looks a lot nicer than 66.7. At least for the near future, The Aluminum Association says it will continue to report and use both figures.

No matter how the numbers are calculated, the downside of the latest report is that $812 million worth of aluminum cans are not being recycled (based on 2013 figures). Those cans ended up in landfills.

Lightweighting has helped to reduce the amount of aluminum lost to landfills. The typical UBC in 2014 had a weight of just 0.013 kilograms, or just less than half an ounce (0.46 ounces to be precise).

While markets for UBCs remain strong, there is question about where the market for aluminum cast and sheet is headed.
 

An uncertain outlook

The experts contacted for this story are split on their expectations regarding demand; some say they expect demand to pick up in the second half of 2015.

“I do anticipate the automotive scrap issue will work its way through the market, and these guys will be buying again,” Kripke says. “It will go from a buyer’s market to a seller’s market in the second half of the year.”

Dorfman is not so sure, however. “It’s getting tougher out there,” he says.

He says he is adopting a wait-and-see attitude and playing it close to the vest.

Goldberg agrees with Dorfman. “We will be in this for a while,” he says. “It is not prices driving the slow-up. It is not the weather. 2015 is going to be a tough year,” Goldberg says.

“I don’t feel the urge at the dealer level to buy the volumes that they were buying,” Goldberg adds.

He adds that his company is seeing growth in the number of mixed loads the company is receiving. “We’re seeing mixed loads of reds and whites rather than full loads of either,” he says. “As a wholesaler, our yard loads have picked up some.”

Others anticipate improvement in the intermediate to longer term. Schrock says he is optimistic about the summer into fall. “We see it flat for a few months, and then it will nibble up a bit,” he says.

With 35 years in the business, he says Earthworks Recycling will ride out the current cycle just the way the business has over the decades. Like other professionals, he will be around for the next cycle.

The author is a contributing editor to Recycling Today. He is based in Cleveland and can be contacted at curt@curtharler.com.