Aluminum scrap availability likely to remain tight

The aluminum scrap market continues to be characterized by tightness, particularly within the U.S., which is likely to continue into next year, according to sources.

“If you go back toward the end of last year, it was very different,” says Rick Dobkin, chief commercial officer at Shapiro Metals, headquartered in St. Louis. “There was plenty of metal out there, and then there wasn't as much interest.”

Now, however, several new aluminum mills that will consume recycled aluminum are coming online, a scenario that is likely to keep scrap tight.

“Scrap is going to be in short supply for quite a while until we can get our arms around better supply, whether that’s improving UBC [used beverage can] recycling rates from kind of the dreadful spot where they are now or working with sortation technology to be able to sort the metal better, so it either doesn't end up getting downcycled or getting exported,” Dobkin says.

While he says companies starting up this new melting capacity are smart and surely have a plan, he adds, “I don't think things are going to improve as far as availability. I think we're going to be in a tight market for quite a while.”

“It was a long winter for aluminum between terminal markets, weather and slowed manufacturing,” adds Andy McKee president of Schupan Materials Trading at Kalamazoo, Michigan-based Schupan & Sons. “Fortunately, it looks like we have made it through.”

He’s “cautiously optimistic” about the coming months, noting that the London Metal Exchange (LME) aluminum price was more than $2,700 per metric ton as of late May and flows of materials have picked up, making “life for a processor/trader a bit more interesting.”

As of late May, McKee says spreads remained healthy and mills were interested in scrap, “But there are things to be concerned about; why is the LME up?” he asks. “Is it truly demand or driven by financial trading interests? If it’s the latter, that could mean fragility.”

The first week of June saw the aluminum price soften along with pricing for base metals generally. As of June 7, the official LME aluminum closing price for the three-month contract was $2,578.

“The fiery copper rally lifted the rest of the metals, with prices hitting one-to-two-year highs in the other five complexes at around the same time as copper peaked,” writes Edward Meir in his “Monthly Market Commentary” for London-based Marex dated June 8, noting that most of the gains made in the week starting May 20 were rolled back over the next two weeks, with copper and aluminum each losing 2.8 percent over the week of June 3.

“Despite the post-May 20th sell-off, all six base metals are roughly at or just slightly below where they were at the start of May and so the correction arguably has yet to run its full course.”

McKee says trends regarding spreads for scrap versus the terminal market price will vary by commodity. “An item like UBC I believe will widen, modestly, through the summer months before tightening back up in Q4,” he says. “The same could be said for most sheet grades. I think extrusion grades will be flat to slightly wider as markets sort themselves out.”

He attributes the tightness in recovered aluminum availability to weaker manufacturing overall. “Flows into yards from peddlers is fairly flat for us,” though he adds that retail trade is not a big piece Schupan’s business, “but I would imagine it’s volatile in many markets largely driven by volatility in steel scrap markets. I know that shredders across the country are likely hurting as there just aren’t enough pounds out there.”

In terms of domestic demand, McKee says extruders are somewhat weaker than they were this time last year. “Sheet guys are probably a little stronger, but I think that’s mostly driven by more participants than overall market demand for finished goods,” he says.

“Can sheet makers have had a remarkable run of success largely due to an oversupplied UBC market and wide spreads on that commodity. And that success has drawn investments that are now being built, and it’s brought a lot of new interest from processors, traders, melters, etc. So, now we are seeing things change because supply chains are being reestablished and folks are jockeying for position to meet the demands of the future market. It’s a fascinating time for UBCs.”

In late 2023, Schupan announced it was investing more than $40 million in two aluminum shredding and sorting facilities in Kalamazoo and in Logan County, Kentucky, which is near several of its large consuming customers.

The 100,000-square-foot facility in Kalamazoo uses shredding and sorting technology to prepare lower grades of obsolete aluminum scrap to supply billet makers and coil producers, while the Kentucky plant focuses on preparing UBCs. The sites have 100 million pounds of output combined, primarily in the form of 6,000-series extrusion scrap, 3,000-series scrap for sheet mills and UBCs.

“Our facility in Michigan is fully operational, and we are quite pleased with the progress made thus far, both in terms of consumers' needs we are able to meet and the suppliers we are building out to support our efforts,” McKee says of these investments.

He adds that a few operations-related hiccups delayed the opening of the Kentucky facility, though that site is fully operational as of late May.

“It sits on 90 acres in Logan County, Kentucky, and its primary purpose is to process UBC that is not able to go mill direct today,” he continues. “We clean UBC that ranges anywhere from 5 to 30 percent contamination levels.

“That plant being so close to our customer base presents a lot of exciting opportunities for the future. Schupan is very proud of both plants and proud of the investments we made to meet the needs of the future marketplace.”