Zhitong Finance learned that as the metal recycling industry faces greater pressure to decarbonize, recycled metals will drive a large-scale aluminum wave that is about to hit the global market. Jorge Vazquez, managing director of industry consulting firm Harbor Aluminum, said that in the five years up to 2026, the world will increase the purification capacity of 22 million tons of scrap aluminum every year. “Aluminum scrap is the new aluminum ore,” Vazquez said Wednesday at North America's largest aluminum conference.

The price of aluminum has risen 11% this year, which has spurred recyclers to look for more sources of waste. In recent years, due to soaring energy and raw material costs, the profitability of raw aluminum smelters has also faced cyclical squeezing, and they are also under pressure to reduce emissions.

In China, many analysts and traders expect global aluminum prices to rise sharply as production reaches this ceiling. Increased production of used resources may help fill the gap, but as the plant expands, finding sufficient amounts of waste to meet the plant's needs will be a challenge. Harbor predicts that in the five years up to 2026, the net increase in recycling production in China will reach around 6.3 million tons, which means these plants will fall far short of production capacity.

Harbor said that by 2026, recycled aluminum will account for two-thirds of the unwrought aluminum supply in the US, up from 45% in 2015. Meanwhile, major industry players have invested in the scrap market over the past year.

In July of last year, Rio Tinto (RIO.US) acquired 50% of North American scrap aluminum producer Matalco Inc. Last week, Norwegian Hydro invested $85 million at its Kentucky plant to produce recycled aluminum auto parts. Duncan Pitchford, head of Hydro Aluminum America, said at the same conference: “This is exactly what our customers want. They want their products to have a lower carbon footprint because they've made promises to their customers and they'll do it.”

Not only is recycling aluminum less expensive, it also consumes far less energy than primary production. The main challenge is to improve the efficiency of recycling and disposal of waste. “Once the market is saturated with a reusable material, you have a responsibility to reuse it,” said Charles Johnson, CEO of the American Aluminum Association. This is one of the reasons that reduces the overall carbon intensity of aluminum production in North America.”

Vazquez said the additional supply will keep the aluminum market surplus, and high interest rates will stop the price increase on the London Metal Exchange (LME).