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Aluminum Makers Ditch Can Business


MARCH 19, 2019

Used cans are piling up at scrapyards because U.S. aluminum companies are turning fewer of them into new metal, another indication of the economic challenges facing recycling.

Arconic Inc. and other aluminum rollers are producing less sheet for beverage cans and more higher-margin, flat-rolled aluminum for automotive and industrial components. Prices for used aluminum cans in the U.S. have fallen about 30% since last summer. Old cans are less versatile than other scrap. The makers of airplane and car parts prefer not to use aluminum made from recycled cans. More new cans in the U.S. are made from imported aluminum.

“We’d prefer to purchase domestic can sheet, but as of right now there is not enough to supply the domestic market,” said Jamie Westfahl, senior director of global packaging procurement for Denver-based brewer Molson Coors Brewing Co.

Producing aluminum for cans isn’t as profitable as rolling sheet for car companies. Aluminum rolling mills are paid about $1 a pound above the market price for the raw-aluminum ingots they use to make auto-body sheet, compared with about 35 cents a pound for converting can sheeting.

The challenging economics is a troubling sign for food and packaging companies that are facing pressure to embrace recycling. The glut of used cans shows how public calls for using more recyclable materials can fall short if companies decide it isn’t profitable enough to remake them into new products.

Other recycled materials are facing similar problems. Scrap paper and plastic prices have collapsed since China imposed higher standards on the purity of those products imported from the U.S. China implemented tariffs of 50% last year on aluminum scrap from the U.S. That has created a glut of shredded scrap from junked cars in the U.S. to mix with the growing stockpile of discarded cans.

Atlanta-based Novelis Inc. has shifted some production in recent years from cans to making more aluminum sheet for vehicle bodies. The company opened new lines for auto sheet at a plant in Oswego, N.Y., and is building a plant to make automotive aluminum in Guthrie, Ky.

“We’ve done it. Our competitors have done it,” Novelis Vice President Andy King said. The company also recently increased production from its remaining can-sheet lines as demand for cans improves.

Arconic is investing $100 million at one of its plants to shift production from can sheet to automotive and industrial aluminum. The company stopped making can sheet at the end of last year at the plant near Knoxville, Tenn., that accounted for 14% of the aluminum used in beverage-can bodies and was a major consumer of discarded beverage cans.

Alcoa Corp. is bucking the trend, keeping its rolling mill in southern Indiana committed to just making can sheet. The company has increased production about 20% in the past two years. While making metal for cans isn’t as profitable as producing aluminum for auto bodies, can sheet has become more profitable recently because falling prices for used cans have reduced producers’ scrap costs and widened their margins.

“It’s a good market to be in,” said Tim Reyes, president of Alcoa’s aluminum business.

Aluminum cans have been the most recycled packaging in the U.S. since they supplanted steel as the beverage container of choice in the 1970s. Aluminum can be repeatedly melted and rerolled into paper-thin sheets. About 70% of the aluminum in the 94 billion beverage cans made for the U.S. and Canada last year came from scrap, according to the Can Manufacturers Institute trade group.

But can-sheet production in the U.S. fell 10% between 2011 and 2018 to 1.8 million metric tons annually, according to industry groups. Market consulting firm Harbor Aluminum Intelligence Unit LLC expects annual domestic capacity to make can sheet to fall to 1.73 million metric tons by 2020, down 30% from 2010.

The hole left in the U.S. market is being filled by imports. Can-sheet imports have increased more than 200% since 2013, based on U.S. Census Bureau data. About 70% of imports last year came from China despite the 10% tariff the Trump administration levied on imported aluminum last March. The administration also has granted exemptions on 362,000 metric tons of imported can sheet, most of it from Saudi Arabia.

Can manufacturers Ball Corp. and Metal Container Corp., a unit of beer maker Anheuser-Busch InBev SA, have asked the Commerce Department to exempt about 64,000 metric tons of Chinese can sheet from the tariff. Their requests are pending.

Beverage companies say can-sheet manufacturers have raised prices to reflect the tariff and lower U.S. production. Kelly Clay, chief executive of Wyoming-based Admiral Beverage Corp., said his costs for cans from Crown Holdings Inc. and Ball have increased 15% since the tariff took effect. That obliged him to raise prices on the drinks he bottles and distributes for PepsiCo Inc. in seven Western states by about 15% as well, to $3.35 for 12 cans of soda.

“I don’t know anybody in this industry that is getting any of these tariff exemptions off their can price,” he said.