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Analysts project an aluminium scrap supply glut in the US; no sustainable demand likely from alternative export markets

AL Circle

With China’s crack down on inferior quality scrap imports and the steep tariffs on imported scrap from the US, there is a fear of scrap supply glut in the U.S., analysts from CRU Group said. Mike Southwood and Greg Wittbecker, both Pittsburgh-based aluminium industry analysts with CRU Group said so in a webinar hosted by the Aluminum Recyclers Council (ARC), Wauconda, Illinois.

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Southwood said that China had been the largest consumer of U.S.-generated twitch and zorba in the last decade and the U.S. scrap industry was built up on that with more and more investments, expansions and more suppliers joining the business. When China implemented its Green Fence initiative in 2013 to control inferior quality scrap imports, U.S. exports of aluminium scrap to China dropped 16 per cent and as of late 2018, aluminium scrap exports dropped 62 per cent from their peak period.

Shredded aluminium scrap imports to China increased in 2017 only in anticipation of a stricter scrap import ban from the US on various scrap grades. This encouraged panic buying. In 2018, total aluminium scrap exports have increased despite declining imports from China.

“At its height, China accounted for about 70 percent of total U.S. aluminium scrap exports in the years 2011 to 2013. [In 2018], annualized, we expect it will only account for about 34 per cent of total aluminium scrap exports from the U.S.,” Southwood said.  The US is shifting to other Asian market to export its surplus scrap.

Southwood also attributed China’s drop in scrap import to its increased self-sufficiency in the secondary industries and secondary aluminium production is expected to grow to about 15 million tonnes by 2025. The biggest blow on US aluminium scrap import was however, China’s 50 per cent on U.S. aluminium scrap imports in response to the Section 301 tariffs.

Southwood added that U.S. exports of aluminium scrap to India and Malaysia have increased by 176,000 tons in 2018, which has covered almost 204,000-ton gap created by the decline in trade with China.

Wittbecker however added that it is unrealistic to expect the exports to these markets to continue at the same pace because those markets don't have enough secondary alloy demand for a long term.

Domestic U.S. market is not in a position to absorb the overhang of aluminium scrap.  The huge amount of automotive scarps cannot be absorbed domestically as different mills have higher or lower capabilities of absorbing automotive scraps when they come back from different OEMs and not all alloys are easily recyclable.

Within the U.S., a number of aluminum scrap consumers are investing in added scrap processing capacity, he said, including Tri-Arrows Aluminum Inc., Spectro Alloys Corp., Matalco, Arconic, JW Aluminum, Alcoa and Braidy Industries. However, he is not sure how much of surplus zorba and twitch scraps can be absorbed by the new capacities.

“The real question on the obsolete grades is do we have sufficient growth in secondary demand to really allow us to absorb additional scrap. It's the same issue that I mentioned about some of these external markets like India and Korea—a lot of supply available, but can they use it and turn it into alloys that they in turn can sell themselves,” he concluded.

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