Commodities 2022: Aluminum can recycling holds key role for US supply, sustainability

Ballooning demand for aluminum beverage cans has intensified the spotlight on their infinite recyclability, but analysts say US can recycling rates must rise in 2022 and beyond to support the wider aluminum industry's sustainability profile and supply chain in the region.

Regarding sustainability, higher recycling rates will provide a stronger foundation for aluminum and beverage can companies to tout aluminum's role in a lower-carbon future, according to BMO Capital Markets analyst Mark Wilde.

"If the industry doesn't raise the overall recycling rate, they have an Achilles heel to their environmental sustainability argument," Wilde said in an interview with S&P Global Platts.

Financiers are motivated to invest in can companies based on the strength of the industry's sustainability story, which is predicated, in part, on the ability to improve recycling, Wilde said.

"There's a big incentive right now for the can companies to try to figure out how to get the recovery rate up, and they are doing things like providing some financing for recovery facilities to be able to better sort out aluminum," he added.

Additionally, recycling will be critical as the global aluminum industry faces potential supply shortages in the short term, Bank of America metals industry strategist Michael Widmer told Platts.

"The aluminum market from a global perspective is looking very tight in the coming years," Widmer said. "Does it mean that you're running short of aluminum? Well, I think you have to increase recycling in a lot of places. In the US, the average can recycle rate is still relatively low."

Widmer said aluminum scrap prices may need to rise to incentivize more collection and recycling.

The Platts assessment for used beverage can (UBC) scrap reached 90 cents/lb Dec. 9, up significantly from 68 cents/lb at the beginning of the year.

Other Platts aluminum scrap assessments settled Dec. 13 at 74 cents/lb for old cast, 74 cents/lb for old sheet, 90.5 cents/lb for mill-grade MLCCs and 73 cents/lb for turnings. Respectively, these assessments have also risen from 61 cents/lb, 62 cents/lb, 70.5 cents/lb and 55 cents/lb at the beginning of the year.

The Can Manufacturers Institute said US aluminum beverage can recycling rates have hovered only around a 50% average over the last 20 years, according to a November report. The institute recently launched an effort to boost US recycle rates to 70% by 2030 and 90% by 2050.

Imports hurt sustainability

US aluminum beverage can imports, viewed as unsustainable compared with domestic supply, have spiked in recent years to meet the region's new demand paradigm. Investments in domestic can capacity and recycling infrastructure could reverse this trend.

CMI President Robert Budway said the institute's member companies are working with customers to balance capacity and demand.

"By 2023, CMI calculates an increase of more than 40% additional invested capacity above 2020 unit volumes as beverage can manufacturers invest hundreds of millions of dollars to address customer needs," Budway said in a statement to Platts. "According to public announcements, CMI members have committed to opening eight new aluminum can manufacturing facilities. CMI members are also increasing production in another four locations."

Oliver Graham, CEO of beverage can maker Ardagh Metal Packaging, said the can industry will take "several years to catch up to current demand levels" but will eventually regain some market share taken by imports.

"Imports will definitely get replaced by domestic supply because they are very uneconomic from a dollar point of view and they are very poor from a sustainability point of view when you think of the additional freight and CO2 of transporting empty cans all over the world," Graham said during a presentation at the Credit Suisse Industrials Conference in December.

Through October, the US has imported 10.8 billion cans in 2021, compared with full year can imports of 2 billion in 2019 and 7.6 billion in 2020., according to US Census data.

Annual imports did not exceed 1 billion cans in any year from 2011 to 2017 after hitting 1 billion in 2010.

"You really don't want to ship empty aluminum cans halfway around the world," Wolfe said. "The fact that we're going to import about 15 billion cans this year is just mindboggling considering the incremental costs that puts on the cans as well as the logistics problems."

Constellium CFO Peter Matt said environmental, social and governance trends, along with growing aluminum demand and production capacity, should promote investment in aluminum recycling.

"When you look at the growth in the end markets that we're seeing, as we're producing more aluminum for these end markets, there's going to be more scrap that gets produced that needs to be recycled," Matt said during Constellium's third-quarter earnings call.

The Paris-based Constellium operates several plants in the US and produces rolled aluminum products for multiple sectors, including the beverage can industry.