Risks to the industry
As an industry, we see some risks that have the potential to significantly impact the entire domestic aluminum recycling supply chain, dramatically affecting scrap recyclers, recycled alloy producers, die casters and foundries. We also see a hole in addressing these issues, and we believe that ARC can be positioned to promote solutions that benefit the entire supply chain in a way other organizations cannot.
First, let’s focus on the positives:
- Aluminum is the most recyclable material in the world. Seventy-five percent of all aluminum ever created remains in circulation.
- Recycled aluminum can be used in almost every application that uses primary aluminum.
- Recycled aluminum uses 95 percent less energy than creating primary aluminum.
- Recycled aluminum producers have more domestic scale than primary aluminum producers. Aluminum alloy producers directly employ twice as many people domestically, and more than 90 percent of the raw material for recycled alloy production is sourced domestically, while 90 percent of primary aluminum is imported. Instead of spending billions of dollars on energy overseas, that money can directly support domestic recycling efforts.
Yet, even with all of those benefits, the domestic aluminum recycling industry is at risk. Aluminum recycling plants have closed at a staggering rate in the past decade, and the industry’s largest company is now in bankruptcy for the second time in that span.
Primary aluminum producers have been growing market share consistently by developing new applications while specifying primary alloys instead of recycled alloys. Increased aluminum penetration is great news for aluminum in general, but we see significant opportunity in many applications that have been overengineered for primary aluminum alloys when recycled aluminum would provide better value. For instance, a new Tesla uses primary alloys for structural applications that could instead use recycled alloys. It’s a better fit for the brand image and from a cost, function and sustainability standpoint.
Recent reports on the impact of the electrification of vehicles show a bleak picture for recycled aluminum alloy use if these trends toward primary alloys continue. On the current trajectory, recycled aluminum castings in cars will decrease, even while the total aluminum content increases. As a group, we think the benefits of the aluminum recycling process provide cost, sustainability and performance benefits that consumers and original equipment manufacturers (OEMs) can’t and won’t ignore. But there has been
The Trump tariffs have created clear benefits for domestic primary aluminum producers. But many have raised legitimate concerns on the impacts on overall trade, on consumer pricing
In general, we believe free and fair trade is the best and most efficient plan for long-term growth. Tariffs and subsidies can have significant unintended consequences, including inefficient capital allocation, short-term instability
However, the truth is that the table has been tilted against the American aluminum industries for many years, most drastically by China. It has resulted in a primary aluminum industry that is almost nonexistent in America, and now downstream companies rely on imported primary aluminum. But it has greatly impacted recycled aluminum as well. Subsidized production of recycled aluminum in China—using American scrap—has led to years of offshoring that has hurt U.S. foundries and die casters that use recycled aluminum alloys. We see the tariffs as a resetting of the playing field that moves closer to fair trade for the domestic aluminum industry.
We believe the tariffs should do more good than harm for recycled aluminum. While they will cause immediate disruption and price increases in the downstream primary aluminum segment because of insufficient domestic supply, recycled aluminum consumers have a sustainable supply chain with scrap far exceeding domestic demand. This should limit short-term volatility.
In the short term, the tariffs could result in a number of effects:
- significantly higher domestic primary aluminum prices;
- modestly higher domestic secondary aluminum prices;
- an increase in the delta between recycled aluminum alloys and primary aluminum alloys;
- an increase in the Midwest premium as calculated by American Metal Market (AMM);
- a potential decrease in the outright price of aluminum on the London Metal Exchange (LME) as international producers try to limit volume risk;
- significant increases in the U.S. aluminum scrap supply from the impact of the steel tariff; and
- increased demand for scrap exports as a result of increased domestic demand and a weakening dollar likely will counter downward scrap price pressure from increased supply.
Perhaps the biggest impact on the recycled aluminum alloy sector, including scrap suppliers and die casters, is in the long-term shift and domestic growth it could spur. Importantly, the Trump tariffs apply to imported castings and
- primary aluminum price volatility as the international aluminum supply/demand balance adjusts to this and future trade policy changes;
- recycled aluminum alloy price variability as domestic demand, scrap generation
andexchange rates affect prices—but significantly less volatility than primary aluminum prices;
- more investment in domestic aluminum casting and more reshoring of projects that have been sent overseas, resulting in increased demand for recycled aluminum alloys; and
- price deltas will drive more applications from primary aluminum to cost-effective recycled aluminum alloys, reducing the percentage of scrap exported and increasing value across the supply chain.
Promoting recycled aluminum
The ARC encourages the Trump administration to support domestic manufacturing of recycled aluminum alloy products. The greatest opportunity to support domestic jobs and to protect American resources lies not with protecting primary aluminum production but with promoting recycled aluminum. Recycled aluminum alloy products support domestic jobs in recycling, casting, machining and assembly while delivering environmental and downstream cost benefits that primary aluminum cannot provide.
In 2016, our industry recycled nearly 4 billion pounds of aluminum. That year, the U.S. exported more than 3 billion pounds of aluminum scrap, mostly to Asia. The inherent energy savings and downstream manufacturing jobs that are unlocked by this valuable scrap stream are lost opportunities for domestic manufacturing.
The energy savings contained in scrap exported from the U.S. is equivalent to the total energy consumption of every household in a state the size of Massachusetts. The carbon dioxide savings are equivalent to taking 5 million cars off the road. Recycling this scrap in the U.S. would eliminate a huge amount of transportation waste and support hundreds of thousands of U.S. jobs.
Currently, the table is tilted by the Chinese and the U.S. governments in a way that hurts U.S. manufacturing. Companies that export aluminum scrap from the U.S. are given a tax break to do so. At the same time, China uses billions of pounds of aluminum scrap from America to save energy and support downstream jobs. China competes unfairly by subsidizing recycled aluminum manufacturing to make parts for cars, trucks, airplanes, lawn mowers, appliances, lighting
Tariffs and subsidies can have significant consequences, including inefficient capital allocation, short-term instability and long-term imbalance. However, fair and balanced trade approach can yield benefits for everyone.
The ARC recommends two actions to the Trump administration:
- Don’t overlook the potentially massive impacts of trade policy on the aluminum recycling industry and the hundreds of thousands of jobs it supports. Any trade action should be targeted at “bad actors” and include finished and
semifinishedproducts such as castings and extruded parts.
- Level the playing field and support domestic recycling of our abundant scrap aluminum resources. Explore a “Recycled in America” initiative for manufacturers that would benefit the entire aluminum supply chain, yielding more American jobs and sustainable, lower cost finished products for consumers.
While we’d prefer to see stronger action against specific unfair trade partners, we believe the tariffs generally will benefit the entire domestic aluminum industry. There will be some short-term price volatility and some pain in certain segments of the industry, but the enhanced support for domestic manufacturing will help drive growth for the entire supply chain.
The ARC is a vital step toward improving the domestic aluminum recycling supply chain and deserves your support. We’d love to hear your feedback on the organization and these policy issues.
The work to establish new applications for recycled aluminum alloys must happen. An enhanced “Recycled in America” initiative would directly benefit die casters, alloy producers