Aluminum recyclers: Split is good for both
November 29, 2012
From:  Waste & Recycling News
By:  Shawn Wright

Parting is such sweet sorrow, unless the feeling is mutual.

In late August, Alcoa Inc. took full control of Evermore Recycling LLC, a company formed nearly three years ago in a joint venture between Alcoa and fellow aluminum recycler Novelis Inc.

The split, initiated by Novelis, came as a surprise to Alcoa.

"We didn't know that this was going to take place, but as soon as we did we were like, 'Yes, we would love to take over Evermore. We would love to have it completely to ourselves,' " said Kevin Lowery, spokesman for Alcoa's global flat rolled products unit. "What it does is enables us to do things that you're not necessarily able to do together with a partner."

More than a month into the split, Alcoa's Evermore was purchasing more used beverage containers (UBCs) at a lower price than it was before the split, Lowery said. He declined to go into details.

"We think we have a fabulous spot when it comes to Evermore," Lowery said. "The way this worked is we took Evermore, while Novelis has to go and start up their entire system. We hit the ground running on day one."

But Novelis feels it's in very good shape, as well. Four plants were in use during the Evermore joint venture: Novelis has facilities in Oswego, N.Y., Berea, Ky., and Greensboro, Ga., which it will keep. Alcoa now just owns and operates the Nashville-based Evermore facility.

"They've been saying that they've basically taken over the largest buyer of UBCs in North America, which really is only the case because we were participating in it," said Derek Prichett, Novelis' vice president for global recycling. "Prior to us leaving, they were the biggest buyer … Now that we've gone, we're clearly the biggest buyer of UBCs in North America and globally."

Novelis' recycled metal content is 39%, up from 33% the previous year. Novelis buys the equivalent of 40 billion cans a year, worth an estimated $1 billion. It expects its global consumption of used beverage containers to grow to more than 60 billion cans by 2015.

John Tumazos, owner and senior analyst of John Tumazos Very Independent Research LLC, said he thinks the motive behind the split was that both companies believe the aluminum scrap is cheap and undervalued.

"And that they could make a profit if they get more scrap and they weren't able to agree on how to divvy the pie," Tumazos said.

Novelis, part of India-based Hindalco Industries Ltd., continues to produce can sheet from scrap in large amounts. Last year, Novelis announced that it wanted to use aluminum scrap as 80% of the company's overall feedstock worldwide by 2020. Alcoa has a global recycling rate goal of 90% by 2030.

"Competition is only going to collect more cans and pay a slightly higher price to the people who feed Alcoa or Hindalco," Tumazos said.

The 2009 alliance was designed to reduce costs and increase efficiencies in the UBC supply chain. The joint venture, was originally scheduled to last until 2014.

With Alcoa and Novelis now separately going after the aluminum pie, it stands to reason that used beverage containers recycling could increase.

The U.S. recycling rate for aluminum beverage containers was 65.1% last year, a 7% increase from the previous year. The industry has a goal of 75% by 2015.

But the numbers can be misleading because the increase was due in large part by imports of UBCs. Last year, imports from Mexico, Canada and other countries were nearly 329 million pounds, an increase of 25.5% from the previous year.

"Consumer recycling has remained, essentially, flat," said Steve Gardner, vice president of communications at the Aluminum Association.

Aluminum cans are recycled into new cans in less than 60 days and require 95% less energy than cans that use primary metal. The process can be repeated infinitely.

"I think people are finally beginning to realize the value of an aluminum can," Lowery said. "In traditional curbside recycling programs, aluminum makes up less than 2% of the volume but 40% of the value. And that's just on the curbside."

Susan Collins, president of the nonprofit Container Recycling Institute, spoke with the two companies after the split. She said both are pleased that they're going to have a rigorous infrastructure in place to procure material.

But for Collins, the only way to get a national 75% aluminum can recycling rate is with a deposit system.

"Anybody who's a serious student of this or is seriously attempting to increase the recycling rate, like these companies are, will reach that conclusion," Collins said. "The number of data points is overwhelming."