Andy Home: Aluminum scrap is the new front in the war on critical minerals.

The competition for essential minerals has now reached the lowest part of the metal supply chain.

Maros SEFCIOVIC, EU Trade chief, says that aluminium scrap is a strategic commodity. Over a million tons of aluminium scrap is exported from the EU every year.

Sefcovic, the European Commission's Director of Communications and Public Affairs, described this as "a measure that is balanced" in order to keep more recyclable materials in Europe.

The industry association European Aluminium blames the United States for the price differential created by the country's import duties, which is causing more European scraps to be exported to the U.S.

The Aluminum Association, a U.S. trade group, is also concerned about the leakage of scrap metal. However, it is blaming China and calling for "smart export controls".

The global scrap war has begun.

A STRATEGIC PRODUCT

Scrap metal is of strategic importance to European policymakers, as it lies at the core of the industrial policy for the EU, and represents the intersection where circularity intersects with decarbonisation, strategic autonomy, and the convergence between the three.

Europe has set an ambitious target to recycle 25% of its critical mineral demand by 2030.

Aluminum is already available. Metal is infinitely recyclable, and remelting only requires five percent the energy required to produce virgin metal. This means that carbon footprints are much smaller.

Scrap has become a more important feedstock in recent years, as the high energy costs have forced many aluminium smelters to close. The annual primary aluminum production in the region has dropped by a quarter compared to 2011.

European Aluminium estimates that around 15% of recycling furnaces in the EU are idle due to lack of feed.

The exemption for aluminum scrap from U.S. tariffs on imports of primary metals and semi-manufactured goods was doubled by U.S. president Donald Trump to 50% in June. The association warns that the arbitrage window created by the U.S. President Donald Trump in June is increasing Europe's scrap leakage.

The U.S. import data through July shows that shipments to the U.S. have increased, but only from a low base. Mexico and Canada are the two largest scrap suppliers to the U.S., with 53% and 30% of total imports.

There is no doubt about the trend. Consultancy Project Blue calculated that European exports to non-EU countries of scrap aluminium rose at an average compound growth rate of 8,9% between 2018-2024.

A GRADED Question

It depends on the type of scrap you're using.

Due to a decline in domestic recycling and dismantling capacity, Europe and the United States export low-grade end-of life scrap.

China and India are the two biggest buyers of raw materials. However, China's crackdown in 2020 on low-grade imports created a loop whereby scrap is upgraded and then sent to Chinese recyclers.

The European Commission's promise of no blanket export ban acknowledges that Europe is currently unable to process all grades of aluminum scrap that it produces.

The names "Zorba", "Twitch", and other exotic scrap words like these may sound exotic, but they are nothing more than bales of mixed, shredded material that is usually from vehicles at the end of their lifecycle. It is difficult and costly to process them, which is why they are traded with countries that recycle them.

Aluminum Association calls for immediate bans on exports of high-purity scrap, such as beverage cans.

The United States has a constant trade deficit of one million tons of aluminium scrap with the rest the world.

India is the largest recipient of U.S. scrap aluminium, followed by Thailand, Malaysia and China.

CHINA SCRAP PIVOTS ITS ENERGY

China is the West’s main competitor when it comes aluminium scrap.

China's recyclable aluminum imports have increased at a rapid pace since the ban on "foreign waste" in 2020 was quickly reversed, under pressure from China’s recycling industry.

The Chinese demand for aluminum scrap will continue to increase in the future. China's primary smelter industry is operating at close to Beijing mandated capacity limits, which means more scrap must be recycled.

The official goal is to increase the aluminium recycling capacity in 2027 to 15 million tonnes per year. This will create a large potential market for recyclable materials from around the world.

Both Europeans and Americans are at risk because China is preparing to dominate the secondary aluminum sector, just as it already has done in the primary.

Where there's mudk, there's brass (and aluminum)

The rise of scrap protectionism is a sign of how important metals recycling in the West has become.

Recycling is a great way to reduce the West's dependence on imports.

On both sides of Atlantic, it seems inevitable that some type of aluminium scrap will be subject to export restrictions.

The Aluminum Association admits that part of the solution for the West is to make the public aware of the value of scrap.

The United States will still have one of the lowest recycling rates for aluminium beverage cans in 2023. This is compared to a global average of 75%. This is a lot high-quality metal ready for milling that's being thrown out.

The need for trade measures is inevitable, but the solution to scrap availability may be closer to home. Andy Home is a journalist. The opinions expressed in this column are Andy Home's. Open Interest (ROI), a data-driven, thought-provoking commentary on finance and markets. Follow ROI on LinkedIn (opens new tab) and X (opens new tab). (Editing by PhilippaFletcher)

(source: Reuters)