As the metal recycling industry faces greater pressure to decarbonize, recycled metals will drive a massive wave of aluminum that is about to hit the global market. Jorge Vazquez, managing director of Harbor aluminum, an industry consultancy, said 22 million tonnes of scrap refining capacity will be added globally annually in the five years to 2026. "Scrap aluminum is the new aluminum ore," Vazquez said on Wednesday at the largest aluminum conference in North America.
Aluminum prices have risen 11 percent this year, spurring recyclers to find more sources of scrap. Primary aluminium smelters have also faced a cyclical squeeze on profitability in recent years due to soaring energy and raw material costs, while they are also under pressure to cut emissions.
In China, many analysts and traders expect global aluminium prices to rise sharply as production reaches that ceiling. Increased production from secondary sources could help fill the gap, but finding enough scrap to meet the plant's needs as it expands will be a challenge. Harbor forecasts a net increase in recycling production in China of about 6.3 million tons in the five years to 2026, meaning the plants will be well below capacity.
Recycled aluminum will account for two-thirds of the U.S. supply of unwrought aluminum by 2026, up from 45 percent in 2015, Harbor said. At the same time, major industry players have invested in the scrap market over the past year.
Last July, RIO Tinto (RIO.US) bought a 50 percent stake in North American scrap aluminum producer Matalco Inc. Last week, Norsk Hydro invested $85 million in its Kentucky plant to produce recycled aluminum auto parts. "This is exactly what our customers are asking for," Duncan Pitchford, head of Hydro Aluminum USA, said at the same conference. They want their products to have a lower carbon footprint because they have made a commitment to their customers that they will."
Recycling aluminum not only costs less, but also uses far less energy than primary production. The main challenge is to improve the efficiency of recycling and processing waste. Charles Johnson, CEO of the American Aluminum Association, said: "Once a reusable material saturates the market, you have a responsibility to reuse it. This is one of the factors that drives down the overall carbon intensity of aluminum production in North America."
Vazquez said the extra supply will keep the aluminum market in surplus, which, combined with high interest rates, will stop the upward momentum of prices on the London Metal Exchange (LME).