Scrap Aluminum Gets a Boost

Aluminum industry experts say that the recycled aluminum market is bouncing back. As warehouse inventories of primary (virgin) aluminum dwindle world-wide in 2000, the demand for scrap aluminum is rising. This is good news for scrap recyclers, whose market share has slipped from 46 percent to 41 percent since 1997.

In 1999, when aluminum consumption increased by 5 percent, primary aluminum manufacturers rushed to meet demands, leaving scrap recyclers a smaller piece of the pie. But as the market continues to grow, primary aluminum manufacturers are becoming overextended: Their supplies are low and consequently prices are rising. And, higher prices are forcing consumers to reconsider scrap as an alternative to primary aluminum.

“Scrap aluminum is the preferred material because it is cheap in relation to primary aluminum,” says Jim Southwood, president of Commodity Metal Management, Wexford, Pa.

Ford Motor Co., Dearborn, Mich., seems to agree. Craig Gleeson, purchasing specialist for the company, says Ford recycles everything it generates at manufacturing plants because re-melting used aluminum costs approximately 95 percent less than processing primary aluminum. In late July, Ford announced efforts to improve the fuel economy of its cars. The Washington, D.C.-based Aluminum Association says this means increased demand for lightweight metals such as aluminum.

Of the three main domestic scrap aluminum consumers, the transportation industry is by far the largest, accounting for 32 percent of U.S. consumption in 1999. The packaging and construction industries are scrap aluminum's next largest customers. Packaging accounts for 21 percent, and the construction industry accounts for 13 percent of U.S. consumption.

In light of a strong U.S. economy, the transportation industry is enjoying a 6 percent growth rate, Southwood says. The U.S. packaging and construction industries also have benefited from this country's recent prosperity, illustrated by a 7.3 percent jump in gross domestic product (gdp) from 1998 to 1999.

But Southwood and others worry that increased interest rates and higher oil prices will continue to affect vital scrap aluminum markets such as the housing market, which has dropped steadily for the past four months. Southwood also concedes that “the packaging market is flat right now, with a 0 percent growth rate.”

Nick Adams, director of statistics and economics at the Aluminum Association, cautions that the numbers do not look as good as one would expect with such a growing economy. “We are showing demand up 5 percent over the past year, and market indicators are pretty strong right now, but [the used beverage can (UBC)] market is flat because of the competition with plastics,” he says. According to Adams, a high UBC recycling rate is keeping demand for scrap aluminum low.

Nevertheless, analysts such as Bob Garino, director of commodities at the Institute of Scrap Recycling Industries (ISRI), Washington, D.C., says that the future for scrap recyclers is bright. “Scrap's share of the market will continue to grow, because [scrap] is price elastic,” he says. “The supply is there, so it depends on the price to draw out that demand.”