CRU Aluminum: Update on New Aluminum Rolling Capacity, Scrap

In our column of Nov. 4, we updated you on the progress that Novelis and Steel Dynamics (SDI) were making on executing on their planned two mills. Since that time, nothing has really changed. That perhaps is profound in and of itself, in that we have nothing new to tell you about the status of the Manna Capital Partners/Ball Corp. joint venture.

Some skeptics are saying the Manna/Ball mill will never be built now in the aftermath of SDI entering the fray. The harshest critics are saying it was all a ploy just to draw in more rolling capacity, and that Ball had no intention of ever building the mill.

CRUWe believe that is extremely premature speculation. Our sense is that Manna/Ball are still intent on building the mill, but the timing may be deferred due to short-term deterioration in beverage can demand, plus the capital markets’ appetite to underwrite the project. This project may be delayed but we are not ready to call it dead.

Update on the Two Mills Under Construction

SDI has now chosen Columbus, Miss., for the site of its mill, which fits speculation they were seeking a site with access with Tennessee Valley Authority (TVA) power, while still positing themselves to serve the growing beverage can demand in the Southwest and Mexico. This site seems perfectly aligned with SDI’s guidance about the construction of two, standalone secondary casthouses to produce the required rolling slab for the mill. SDI’s track record in steel suggests they will make their 2025 start date.

Novelis is moving along nicely with its groundwork at Bay Minette, Ala., and equipment orders are placed. They seem to be adhering to their timetable of 2025.

Finding the Scrap to “Feed the Beasts”

Our best intelligence continues to say that SDI has carefully choreographed their plans on sourcing:

  • David Rosenblum, vice president at Omnisource, appears earmarked to spearhead the site selection and execution of the two casthouses. David is a long-time veteran of the industry and has forgotten more about scrap than most people know.
  • Monterrey, Mexico, still seems short-listed for the location of the northern Mexico casthouse. This will dovetail with SDI’s Roca Acero and Zimmer scrap companies. SDI will be well-positioned to intercept all the Mexican used beverage containers (UBC) they want, and get their fill of the process can scrap coming from the host of beverage can plants in the region. Still targeted for commencement in 2024.
  • The second casthouse has still not been announced beyond “Southwest.” Conventional wisdom still puts this plant in Arizona or Nevada to avail themselves of the California, Oregon deposit UBC, plus the substantial flows of other industrial scraps west of the Rockies.

 Novelis has been quietly going about their business on Bay Minette, but brings substantial institutional knowledge to the fray:

  • Their global procurement network feeding Brazil, South Korea, and Europe should allow them to effectively arbitrage plenty of imported UBC that is freight friendly to Bay Minette. Central and South American being most likely, although Novelis will be careful not to cannibalize natural UBC flows to their Pinda plant in Brazil.
  • They have the best know-how in dealing with Municipal Recycling Facility (MRF) quality UBC, which are derived from curbside, single-stream collection (where all recyclables are comingled in those ubiquitous blue bins you see in most cities). In the absence of a concerted push for deposit legislation to drive higher supply, curbside collection will offer the most immediate, short-term lift to supply. Historically, MRF quality has been a challenge, with plastic and organic contamination the issue. Novelis has invested the time and money in finding ways to clean up these UBC.
  • Investing seed capital in Sortera Alloys in Fort Wayne, Ind., to develop new sortation technology to recover discrete alloys from comingled scraps such as twitch.

Ongoing Deposit Dilemma

Enactment of new deposit legislation in the U.S. to join the existing 10 states remains problematic. The foes of deposit, mainly beverage brand owners and some retailers, have gotten more support for their arguments based on 2021 data.

According to the Container Recycling Institute (CRI), 2021 recycling rates in seven of the 10 deposit states, statistics for Iowa, Maine, and Oregon are incomplete at this time, have broadly NOT recovered from pre-Covid redemption rates: New York, +6%; Connecticut, +/- 2%; Michigan, +/- 2%; Vermont, +/-  2%; Hawaii, Unchanged; California, -1%; Massachusetts, -5%.

These numbers will make getting new deposit bills passed difficult, with the opponents arguing that deposit is not working better than curbside, voluntary recycling, or commercial sales of UBC.

National deposit legislation appears to have no chance for the foreseeable future. While a national bill would eliminate distortion in the retail market, e.g., consumers crossing state lines to buy beverages in non-deposit states, pragmatists say we don’t need all 50 states to move the needle. What we need are key, high-population states to put deposit in place. This would include Florida, Illinois, New Jersey, Ohio, and Pennsylvania.

The current tactic then is for supporters of deposit—rolling mills, can makers and NGOs—to target individual states. Several tipping points to get state bills passed will include:

  • Allowing retailers to opt out of being redemption centers. This was a major objection of Wal-Mart during 2009-10 efforts to get a bill passed in Texas.
  • Getting curbside operators such as Waste Management, Republic Services, GFL Environmental, and Waste Connections to appreciate the “found money” from claiming unredeemed deposits from UBC placed in single stream. These four waste haulers control 55% of the MRF in the U.S. You can do the math and see how much they stand to gain from claiming back $.05-per-pound deposits on their curbside volumes.
  • Getting a major soft drink company to get on board. Soft drink companies have a big problem with Polyethylene terephthalate (PET) recycling—namely, recycling rates are LOW, around 26%. That low recycling rate resonates with millennials who are refusing to buy beverages in plastic. That means soft drink companies are losing their traditional commercial leverage over aluminum can makers when they threaten to fill in plastic if can prices are too high.

The Clock is Ticking

The market can debate the solutions for higher recycling rates all it wants. One thing is clear, at least two new mills will arrive in three years and their appetite for cans will be high. CRU estimates that if only two of the three mills come to pass, the market will need an additional 300,000- 350,000 metric tons of UBC. If all three mills are built, the requirement goes to 525,000-550,000 tons. There’s no time like the present to get the UBC impasse solved.

By Greg Wittbecker, Advisor, CRU Group,

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