The prolonged price crunch in the global aluminium market is turning out to be a nightmare for the primary aluminium producers worldwide. Low market prices coupled with falling demand from Europe and some of the fastest growing emerging markets, China being the fulcrum, is pushing smelters world over into the operationally uneconomical zone. As if this double whammy was not bad enough, the cost of all possible inputs from energy to raw material and equipments have been constantly going up in line with galloping inflation and currency weakening all over the globe.
Sure, the medium and long term demand growth projections have been bullish for quite some time. But the major issue before the industry planners has been of evolving viable strategies for short and medium term economic survival. Closing down smelting capacities has always been an option to balance the market technicals. But with prolonged depression in revenue and profitability, the cost of restarts could prove crippling for many of the older smelters and those operating in high cost regions of the world. China, the predominant producer and consumer country of the world too is facing falling demand. Both its newly started higher capacity Capex smelters and the older higher Opex smelters are feeling the pinch of falling domestic and overseas demand and falling margins. It is now over a year since markets have been waiting for the turnaround in the economies of the Americas to cascade down to other markets.
In a recent blog on Alcircle from Novelis, a way out was hinted at. The downstream industry of semis and engineering castings in particular have shown a way at weathering the crisis with increasing use of recycled secondary aluminium. Traditionally, it is considered that 33% of overall aluminium consumption is met through recycling. There is no reason this percentage cannot go up if the availability of scrap and its recovery rates can be improved with wider use of some of the recent more efficient furnace, heat recovery, melt treatment and casting technologies.
The news from the availability side is infact very encouraging. Major canned beverage consuming countries like USA have reported significant improvements in collection and recycling rate of used beverage cans to an all time high level of +65%. The figures from Europe are also encouraging. Many of the Middle East countries are undertaking renewal and modernisation of their power transmission systems. This has improved availability of electrical conductor scrap. The building and infrastructure scrap continues to be moderate as also that from Engineering and automobile sectors.
The secondary aluminium production has predominantly remained cantered in small and medium segment. The entry of global downstream convertors like Novelis, Ball and a few major Chinese Secondary smelters have shown the way that the well-known recycling properties of Aluminium can be used for gaining economic edge even in large industries. Primary aluminium producers have been mostly using their mill scale and internal scrap in their cast houses. Not many primary smelters have looked at developing a parallel large scale secondary aluminium production industry yet. With much larger resource base, primary aluminium industry can probably contribute better in the growth of this important segment of Aluminium eco system with making collection, sorting, melting and alloying process more efficient and elastic towards global scales of economy.
With the shadows of pricing gloom still not showing any early withdrawal symptoms, maybe it is time the primary aluminium smelting industry takes a serious look at the recycling sector not just as a parallel or ancillary operation industry but as an integrated part of their overall economic strategy for both ‘fair weather’ and ‘rainy days’ of operations.