Wittbecker on Aluminum: UBC export ban - A sound idea?

The logic behind this seems to rest with the following concerns:

• Increases in domestic mill capacity mean that domestic demand for UBC is rising and we can’t afford to allow this supply to exit the US.
• Our domestic recycling rate is struggling at 43% and we can ill-afford to have what we are collecting leave the country.
• There is fear that China’s relaxed rules on UBC importation, coupled with growing use in lieu of primary metal, will inspire the Chinese to seek UBC from the US and Canadian West Coasts

These concerns are all very real and legitimate, but they fail to make the case for banning exports.

The reason UBC are being exported is that prices being paid out of Asia are superior to what the domestic market is willing to pay.

Some of this may be a function of domestic freight, which has gotten very high and discourages the flow of UBC from West of the Rockies to the big consumers along the I-65 corridor in the middle of the country. We hear the same story from Mexican processors of UBC, who say it is cheaper to export ex Manzanillo on the Pacific Coast than ship back into the US.

So, part of the dynamics behind these exports is simple freight arbitrage. However, some exporters have told us that the gap between export bids and domestic bids is not just a function of freight. They say domestic mills have periodically set their bids below freight parity as they attempt to widen spreads and simply make more money.

This should surprise no one. One of the big drivers behind the past profitability of leading mills such as Arconic, Constellium, Kaiser, and Novelis has been their input costs.

An adage in the market is that “the money is in the scrap.” When UBC discounts vs. Midwest P1020 fell into the 55-65% range, the mills were making very good money. They naturally wanted to preserve those margins and overplayed their hand, driving UBC processors to seek export markets as an alternative. This brought a lot of volatility to UBC this past winter.

We saw the UBC prices spike back to mid-80% of Midwest during January 2025, before sanity returned to the market. At prices this high, it is cheaper to melt P1020 than UBC, considering melt loss and direct charging costs. Prices have subsequently moved back to around 70% of Midwest P1020.

We expect this tension between mills’ desire to widen spreads and the exporters’ desire to preserve leverage through exports, to persist. It may get even higher, depending how primary ingot prices in China.

An export ban does nothing to boost domestic recovery

Any move to ban exports might redirect domestic supply back to the domestic mills, but it fails to address the structural failure. We are doing a lousy job of recovering UBC. We don’t have enough of your time today to go through all the reasons why we are failing. Suffice to say, the convenience factor for the consumer to dispose of their UBC does not exist today.

Deposit legislation operates in 10 US states and delivers higher recovery. Beverage companies oppose deposit, saying it is a tax on consumption and kills their sales. There is little evidence to support this and sales in deposit states like California, Massachusetts, Michigan, and New York don’t seem to be suffering too badly!

Extended Producer Responsibility (EPR) is slowly gaining popularity; it is now in seven states (California, Colorado, Maine, Minnesota, New Jersey, Oregon, and Washington). The concept is simple. Brand owners must underwrite recycling of the products they sell in those states. EPR gets some support from brand owners because they can control the recycled content coming back and monetize it. This becomes the ultimate means to boost recovery.

When beverage companies believe they can share in the savings from higher UBC recovery, they will back any number of approaches to doing it. Today, they feel any increase in recovery accrues solely to the rolling mills and “what’s in it for us?’

A ban on UBC exports in this environment makes no sense until the entire value chain from processor to beverage company gets aligned on how to get total supply up. Blocking exports to compensate for our futility in recovering the 57% going to landfill has no economic justification.

China moves towards UBC 

Chinese rolling mills are quickly embracing UBC as a substitute for primary metal.

We understand UBC RSI (remelt scrap ingot) is worth $1.08 per pound CIF China. China domestic primary ingot is $1.125. This values UBC RSI at a discount of $.045 per pound, which is very consistent with what US mills would value the RSI.

Baled UBC in South China are quoted around $.935 this past week. That compares to US domestic bids around $1.01, so no one is getting excited about exporting to China. However, exporters do take some comfort in these prices. $.935 cents would represent about 64% of Midwest. So, it does provide a de facto floor against the domestic market.

An export ban on UBC would take this floor away from the exporters and it’s why any UBC processor would loudly object to any outright ban on exports.

Why does this matter?

Demand for UBC will rise once ADI and Novelis Bay Minette are fully operational in the next two years. That demand will require higher UBC prices compared to Midwest P1020. This assumes nothing materially changes with our efforts to recover more UBC and makes no assumptions about our ability to import more UBC from either South America, the Middle East, or the EU.

We COULD see more UBC come in from these markets if the UBC spread to Midwest tightens. That’s not what the domestic mills want to see happen, but if domestic recovery does not rise, it is inevitable.

Banning exports of UBC to artificially boost domestic supply is a band aid on a chest wound. It would seriously antagonize exporters and damage relationships with the mills. That could become punitive if the exporters try to penalize the mills by charging more for their UBC being held hostage in the domestic market. That would not be good for anyone.

Instead of creating artificial market conditions with an export ban, the industry needs to get after it and raise domestic recovery through a combination of deposit, more EPR laws and higher investment in recycling infrastructure.