INTERVIEW: Hydro pushes to boost post-consumer aluminum scrap consumption in Europe

European aluminum producer Hydro is focusing on technology investments to improve supply and recycling rates for post-consumer aluminum scrap within the continent in a bid to boost self-sufficiency, Wayne Clifton, head of European Recycling at Hydro, told S&P Global Commodity Insights.

“We’ve been at the front end of trying to keep scrap in Europe. And it's not just a pull from China and other Asian markets, but likewise, there's been a bit of a push from Europe because we haven't been able to deal with that post-consumer scrap,” Clifton said, speaking at the Aluminium trade fair in Dusseldorf Oct. 8-10.

“So, by investing in both upstream and midstream casting technology, we feel we're pushing ourselves into a much better position to deal with that scrap."

Hydro recycled 443,760 mt of post-consumer scrap in 2023, up from 175,000 mt in 2019, and wants to increase this to between 850,000 mt/year and 1.2 million mt/year by 2030.

Technology improvements, M&A focus

Hydro is focusing on increasing the use of post-consumer scrap in its aluminum production to fulfill its decarbonization goals.

“On the recycling side, our fastest way to zero [emissions] is post-consumer [scrap]. So, we are really focusing on post-consumer optimization as recycled aluminum uses just 5% of the energy needed for primary production. It’s a huge difference on the energy intensity and that's why it's so important to continue to develop technology to reduce the need for primary aluminum,” Clifton said.

The company has placed emphasis on advancing its recycling capabilities globally, including in the UK, where it announced in April an investment of NOK180 million ($16.35 million) in a scrap sorting facility in Wrexham. The plant is expected to sort 30,000 mt of post-consumer scrap annually.

“It’s really important to take a position in that sorting upstream because otherwise, the material is destined to go outside of Europe, without us actually able to do something with the material,” Clifton said.

Recent acquisitions, including the 2023 purchase of Polish recycler Alumetal, have positioned Hydro further upstream in the scrap supply chain. The company’s strategy also includes investing in new recycling plants across Europe and North America, which will enable it to handle larger volumes of post-consumer scrap.

In addition to M&A, Hydro is also deploying technological advancements to improve the accuracy of separating post-consumer scrap by alloy type. One of the critical technologies it is relying on is Laser-Induced Breakdown Spectroscopy for sensor-based sorting. The process allows Hydro to better harvest materials for their production lines, but it comes with challenges.

“When it comes to the post [-consumer scrap], it's much more challenging -- from chemical contamination in alloys and also organic contamination like wood and plastics. So, you have two different challenges when we're dealing with post [-consumer scrap],” Clifton added.

Preconsumer or production scrap, which mainly comes from industrial sources, typically stays within a closed-loop system between supplier and customer. This makes it easier to manage and recycle, according to Clifton.

Hydro’s third-quarter results released Oct. 24 cited concerns of a tightening scrap market, with less scrap generation on the back of low activity in the automotive, industrial and building and construction markets.

To boost supply, Hydro launched commercial operations in Q3 at its US joint venture with Alusort to enable plants to process more post-consumer scrap.

Keeping scrap in Europe

One of the major issues facing Hydro and the broader European aluminum industry is the export flows of post-consumer scrap to Asia, due to the lack of infrastructure in Europe to process them.

“We’ve been lobbying and working a lot to stop the export of scrap out of Europe, but we've got to do something with it. If that [exports] was to stop today, we would be pilling up the scrap because we haven't got the technology and the base to deal with it, especially the lower grades,” Clifton said.

The EU's revised Waste Shipment Regulation entered into force on May 20 with rules on exports to be implemented from May 2027. It could restrict aluminum scrap metal exports to non-OECD countries such as India, should processing standards not be considered equivalent to the EU.

Some European scrap recyclers have told Commodity Insights that stricter rules in terms of exporting scrap from Europe could disincentivize scrap collection and reduce recycling rates if recyclers have access to fewer markets, with many exporting the lower-quality scrap grades that cannot be consumed in Europe.

Low-carbon aluminum outlook

Despite the challenges associated with post-consumer scrap, Clifton is optimistic about the future. The global push for more sustainable and low-carbon products has been an outlier in a generally depressed European aluminum market.

“That's the one thing that we see has been bucking the trend. The demand for our green products has remained strong. I would say that's the market that we are wanting to grow more in,” Wayne said.

Platts, part of Commodity Insights, assessed the EMEA Low-Carbon Aluminum Premium at $20/mt for duty paid and duty unpaid in-warehouse Rotterdam Oct. 23, having steadily climbed since the assessment launched in April 2021.

A low-carbon differential is yet to emerge in the European aluminum billet spot markets. Platts assessed the low-carbon aluminum billet premiums at $600/mt DDP Germany and at $600/mt DDP Italy on Oct. 23, both at parity with the carbon-unaccounted premiums.

Wayne noted that the growing demand for green products has occurred not only in Europe but has also gained increasing attention in the US markets. In turn, Hydro decided to invest $85 million in a new casting line to strengthen its aluminum recycling plant in Kentucky, scheduled to become operational in 2026.

“So there's a lot of plants being built, particularly to deal with this post-consumer scrap, which is then enabling us to produce more low-carbon products,” he said.

Hydro’s CIRCAL aluminum, which contains a minimum of 75% post-consumer scrap, is already being used in a wide range of applications, including construction and automotive projects. Alongside its REDUXA brand focusing on production with renewable energy, Hydro has said it aims to cut its carbon emissions 30% by 2030.

The Platts daily assessment for European high-grade auto shreds, also known as Twitch, rose sharply in the first half of 2024 to Eur1,890/mt DDP Germany on June 25, up from Eur1,750/mt on Jan. 2, amid tight scrap availability due to low scrap generation. The assessment has since weakened to Eur1,635/mt DDP on Oct. 23.

Hydro attributed weaker Q3 results for its recycling business “due to reduced sales prices in a weakening market and additional margin pressure in a tightening scrap market.”