Roundtables 2023: Looking to the future of aluminum demandv

The future is bright for aluminum and aluminum scrap, though the present market doesn’t reflect that.

From left: Beatriz Landa of Novelis, Greg Wittbecker of Wittsend Commodity Advisors, Chad Kripke of Kripke Enterprises and Abey Abraham of Ducker Carlisle
Photo by DeAnne Toto

Speakers at the Aluminum Roundtable during the Institute of Scrap Recycling Industries (ISRI) Roundtables 2023, Sept. 6-8 in Chicago, agreed that the future is bright for aluminum and aluminum scrap, though the present market doesn’t reflect that.

“This has been an extremely challenging year for the aluminum market,” said Aluminum Roundtable moderator Chad Kripke, president of Kripke Enterprises Inc., Toledo, Ohio. “Supply chain hang-ups coming down in the pandemic caused a ripple effect as orders on semifinished aluminum products were met with a rising interest rate environment and fears of a recession. The recently compiled Midwest Transaction average for August of 2023, which finished just shy of $1.18 a pound, is down over 40 percent from its high of nearly $2 a pound in March of last year.”

Kripke said the decline in aluminum demand as reported by the Aluminum Association was the likely culprit for the historically wide spreads on common grades of aluminum recovered for recycling.

The Aluminum Association, Arlington, Virginia, released a preliminary estimate earlier this month showing aluminum demand in the U.S. and Canada declined 4.5 percent in the first half of this year compared with the first six months of last year.

Aluminum demand in the U.S. and Canada (shipments by domestic producers plus imports) totaled an estimated 13.3 billion pounds (6.65 million tons) from January through June of this year compared with 13.9 billion pounds (6.95 million tons) in the first half of last year.

“Despite this, the future of aluminum, especially recycled aluminum, looks extraordinarily bright,” Kripke added, citing the many new capital projects that will consume recycled aluminum, which includes investments by Novelis, Steel Dynamics Inc. and MetalX to name a few.

All eyes on scrap

Panelists Greg Wittbecker, president of Wittsend Commodity Advisors, Lithia, Florida; Beatriz Landa, vice president of metal procurement and recycling at Atlanta-based Novelis; and Abey K. Abraham, a principal at Ducker Carlisle, Troy, Michigan, also see a bright future for aluminum and aluminum scrap.

“Over the last couple of days, I've heard a lot of gloom and doom,” Wittbecker said of his time at the Roundtables, adding that people were saying spreads aren’t moving and 2024 deals aren't common together. “Hopefully, some of the things I'll talk about this morning will give you some reason for optimism for the medium and long term.”

He said many structural factors indicate bullishness on aluminum scrap for the medium and long term, including the push to decarbonize the aluminum value chain. “We've been trading low-carbon aluminum for a long time; we just call it scrap,” Wittbecker said, noting that the material is going to be “a key attribute of the decarbonization process in the future.”

However, growing scrap use comes with challenges, including “carbon accounting,” he said, referring to the differences in the carbon footprint of obsolete scrap versus production scrap. Traceability is a related challenge. “Obviously, that's a bit easier with primary metal than scrap,” Wittbecker said. “But, over the next few years, you're going to hear more about this from OEMs [original equipment manufacturers] and mills saying, ‘We need more visibility in our scrap supply chain.’” He said he believes OEMs will be willing to pay for such traceability.

Sorting mixed aluminum scrap grades, particularly wrought from cast, also presents a challenge, Wittbecker said, and is key to capturing higher prices for aluminum scrap. “I think people are doing a pretty good job of sorting it; it's just slow,” Wittbecker said. “It doesn't keep up with the melt rates that our plants need. So, at some point, we'll solve that.”

The other structural problem, he said, is the nature of obsolete scrap, with aluminum often going into products that are meant to last for a decade or more.

In addition to requiring less energy to melt than virgin materials, at $1,000 to $1,200 per metric ton of production, scrap-fed secondary smelters cost less to build than primary smelters, which could range from $6,000 to $8,000 per ton, Wittbecker said.  

Regarding pricing, he said, “These markets feel pretty range-bound to me. For the balance of this year, we could be looking at a range of between $2,000 to $2,350 on the LME [London Metal Exchange],” with the Midwest Premium at 18 to 20 cents over the LME for the balance of the year. In 2024, the Midwest Premium could increase to 18 to 24 cents, Wittbecker added, while scrap spreads likely will start tightening somewhat as we go into next year “just simply because you're going to see more demand pull content from the market.”

“I think we're in a little bit of a downcycle these days, but the demand is there, the markets are strong, the foundations are solid, and we'll get through it,” Landa said. “And not only will get through it, but I think there's going to be a huge increase in demand.”

She called for unity within the aluminum industry. “There's a ton of value and opportunity here. I think we need to get organized, and we need to help each other so that we can position ourselves for success.”

Landa said automotive demand for aluminum is strong, noting there has been a “big pull over last four to six months in preparation for a possible United Autor Workers strike, which began Friday, Sept. 15. However, building and construction markets have softened.

Embracing deposits for UBCs

Novelis is among the companies working with the Can Manufacturers Institute and the Aluminum Association to increase the recycling rate for used beverage cans (UBCs). Landa noted that the UBC recycling rate contracted from 56 percent in 2014 to 45 percent in 2020, creating what she said was “a lot of room for opportunity.”

Novelis and other Aluminum Association members are calling for an increase in deposit programs to address the leakage of UBCs from the recycling system. She noted that the size of the incentive matters, as states with higher deposits generally have higher recycling rates.

“There's such a long supply chain within all this: We're talking about collecting the UBCs, cleaning it, processing it, bailing it, taking it to the mills, etc., that there's enough activity here for everybody. So, we'd love to see one voice and really bring that scrap back; we'll need it in three years.”

Automotive aluminum demand to grow

Abraham pointed to two fundamental shifts in the automotive market over the last two decades that “forced” the auto industry to look at aluminum in a new light: the acceptance of aluminum sheet and the changing mobility paradigm. “We have to accept the electric revolution is upon us.”

Abraham said production of battery electric vehicles (BEVs) is slated to grow by 8 percent this year, the UAW strike notwithstanding. “And that's forecasted to more than double by 2026,” he continued. “In the long term, what we expect is that a little over 1 in 3 vehicles produced in the U.S., Canada and Mexico will be a BEV by 2030.”

The average aluminum content in a light vehicle in North America was 501 pounds in 2022, he said. By 2026, that figure is expected to grow to 523 pounds. “Aluminum’s growth is typically at the expense of conventional grades of steel,” Abraham added.

BEVs generally are 1,000 pounds heavier than their internal combustion engine (ICE) counterparts, he said, with the amount of aluminum per vehicle expected to increase by an additional 557 pounds.

While cast aluminum parts used in ICE vehicle powertrains will be lost from BEVs, Abraham said, “The future of aluminum extrusions is pretty tremendous.” The bulk of these extrusions will be in the battery housing and the door sill/rocker.

Abraham concluded by saying, “The future of aluminum is bright on a per-vehicle basis. It’s the production volumes that we really need to be thinking about.”