ISRI Commodity Roundtables: ‘A marked turnaround’

Since scrap processors and traders assembled in Las Vegas for the Institute of Scrap Recycling Industries (ISRI) Convention & Exposition (ISRI2022) in late March, aluminum has seen a “marked turnaround in primary demand,” said Greg Wittbecker, an advisor to London-based CRU International.

Wittbecker, speaking at ISRI2022, said primary aluminum was heading for a “massive” 2.2 million metric ton shortage. “That is arguably the biggest deficit we’ve ever had in the history of people keeping track of such statistics.”

However, in his presentation Sept. 16 during the ISRI Commodity Roundtables, Wittbecker said the market was now “more or less balanced” as consumption growth has been revised downward in response to inflation. In July, CRU forecasted 1.5 percent year-over-year consumption growth in 2022. As of September, that figure had been revised downward to 0.9 percent.

Forecasted aluminum pricing also has been revised downward. In March, CRU was forecasting that London Metal Exchange (LME) pricing for aluminum would average $3,200 to $3,300 per ton in the second half of 2022. That has been revised to $2,500 per ton in response to the pessimism about a global recession, Wittbecker’s presentation indicated.

Also growing since March is potential future scrap demand as three new mill projects have been announced for the U.S. by Novelis, Steel Dynamics Inc. (SDI) and Manna Capital/Ball. These projects dramatically will change the domestic aluminum scrap demand scenario and “will force the issue on UBC [used beverage can] collection,” Wittbecker said, as well as necessitate new approaches to sorting aluminum scrap, such as zorba and twitch, to make better use of these shredded metal grades.

UBC and class scrap flows will change dramatically with these three projects, he said. “Everything kind of flows to what we call the I-65 corridor” in the Midwest, Wittbecker said. “If all three of these mills are built, and we see these new standalone cast houses that SDI is thinking of positioning, you're going to be looking at a radically different pattern. This is going to look like the O’Hare air traffic control pattern on a Friday afternoon. You’re going to see some traditional flow paths completely blow up—they're not even going to exist in the future. You're going to see some people completely cut off from traditional sources of supply. We may see West Coast UBCs not even make it back to the Midwest. We're going to see a radical reordering of the flow of the metal and who's going to capture it.”

The scrap market is more dynamic than the primary market, Wittbecker said. “Everybody wants to talk about decarbonizing. I like to remind a lot of the people that aren't that close to our industry that we've been training low-carbon metal for probably 75 years; we’ve just always referred to it as scrap.”

Shredded aluminum recovered from automobiles has the potential to lessen the scrap supply gap if the mixed material in the form of twitch can be segregated into extrusions, sheet and castings, he said, noting that aluminum accounts for nearly 120 pounds of weight in the average light vehicle manufactured in North America in 2012, according to data from Ducker Worldwide LLC. Of that, sheet accounts for just over 27 pounds, extrusions for 20.5 pounds and castings for 71.6 pounds.  

“We could potentially see a new market for zorba with Astraea,” he said, noting the patented metal purification process developed by Pittsburgh-based aluminum producer Alcoa Corp.

Alcoa says the Astraea process can “purify any postconsumer aluminum scrap into a purity level of P0101, surpassing the purity of P1020 aluminum that is produced at any commercial smelter.”

“I’m here to tell you that there’s a lot of unanswered questions about this,” Wittbecker said of Astraea. “This is a process that’s still very much what I would say lab scale. It really isn’t into even pilot plant development.”

The cost of the process also is unknown, he said. However, Wittbecker noted that zorba is more expensive than alumina, which is $700 per ton. According to Davis Index, the average price for a ton of zorba 95/2 freight alongside U.S. port in August was $1,366 per ton. “So that means this process is going to have to be dramatically cheaper than what it costs to make primary aluminum or they’re simply not going to be competitive on buying your zorba.”

In the primary aluminum market, the energy crisis in Europe brought on by the war in Ukraine has led to the continent cutting production, which could result in an aluminum deficit.  

“We think we could see a modest recovery before the end of the year as people start thinking about the effects of these production curtailments,” Wittbecker said of the LME aluminum price. “We’re not going to get a big lift on the LME going forward, either in the next month or even in the next six months.”

He said the Midwest premium is “still trying to find a floor,” adding, “We’re still seeing a lot of what I call long liquidation. We've got people that they've been holding metal. You can't finance metal in the U.S. profitably right now, and it's no different whether you're holding shredded aluminum or primary. If you can't finance it, it's a depreciation. Your CFO [chief financial officer] says get rid of it. And that's what we're seeing happen in the market right now.”

He said that CRU does not believe short selling is occurring. “We just think we've got this sort of long, slow drip of long liquidation.”

Josephita Harry, vice president of sales, nonferrous metals and electronic scrap, for Pan American Zinc, Miami, also addressed Roundtable attendees, saying, despite her company’s name, it trades more aluminum scrap than zinc. “This metal is the future,” she said of aluminum. “It has sustainability written all over it. It has recyclability written all over it.”

The energy crisis in Europe will have ripple effects, Harry said, in the form of surplus scrap that is available to other markets. “Now our consumers in Asia and China and India are being flooded with more scraps from Europe in the immediate next few months,” she said. “Use that information to make informed decisions about what we would do about what's available in the United States. The good news is metal is always moving; we just need to know in what direction and use the information to make informed decisions about what we need to do with what we have.”

The ISRI Commodity Roundtables were Sept. 14 to 16 in Chicago.