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What Lies Ahead for the Non-Ferrous Metal Recycling Industry?
by R Keerthana

Industry experts explore emerging trends and future prospects in non-ferrous metal recycling.

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October 11 2023 R. Keerthana
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As the world increasingly embraces sustainability, environmentally friendly practices are expected to shape the future of non-ferrous metal recycling. However, there are numerous challenges ahead: regulatory restrictions, demand fluctuations, price volatility, shifts in supply chains, shifting global trade patterns and macroeconomic factors to name a few. Industry experts evaluate these factors while speaking about the current trends and future prospects for the non-ferrous metals industry. 

Ram Kailash Mahto, Founder-Chairman, GTC Group, noted that the demand for non-ferrous metals, particularly copper, has been on the rise. Presently, the demand for copper stands at approximately 25 million tonnes, with a projected increase to 36 million tonnes by 2036. This growth can be attributed to the increasing global infrastructure development and industrial expansion. “The renewed push in construction, electrical and electronics, automotive, and consumer goods sectors is the key factor driving this upward trend. In the next few years, the growth is envisaged at 5.1 per cent,” he added. 

Speaking of aluminium, he explained that the metal is experiencing significant demand growth, with current requirements standing at 64 million tonnes and an expected increase to 78 million tonnes by 2030. This growth is driven by several factors, including the lightweight properties of aluminum, making it ideal for applications in the automotive and aerospace industries. “The demand is also being pushed by activities in real estate, construction, infrastructure and transmission, and also rising demand for packaged foods. Many automakers are considering aluminum for car bodies due to its strength and lightweight properties, which can enhance fuel efficiency and performance,” he noted. 

Mahto also discussed the factors affecting the current demand for non-ferrous metals. He highlighted that the Chinese economy's slowdown; the conflict between Russia and Ukraine and  fear of recession in major economies have contributed to a temporary decrease in demand. However, he emphasised that the long-term prospects for copper and other non-ferrous metals remain strong due to their extensive applications in various industries. 

Speaking about the price trend, he explained that while copper prices have risen substantially, aluminum prices have remained relatively stable. This price disparity has led to increased interest in aluminum as a viable alternative for various applications, further boosting its demand. 

He noted that custom duty disparity needs to be narrowed down for free flow of commodities. Mahto explained that bilateral trade agreements, such as CEPA (between India and the UAE),  play a crucial role in supporting the industry's growth. These agreements facilitate the flow of non-ferrous metals and contribute to the global economy's stability. “Duty structure is already at lowest ebb, however anti-dumping and safeguard protection measures by countries may affect the market dynamics.” 

While challenges like electricity shortages in some regions and geopolitical conflicts persist, Mahto expressed optimism about the industry's future. He highlighted the growing economies of India and countries in the Middle East, indicating that these regions offer significant opportunities for non-ferrous metal industries to thrive. In the coming years, efforts such as green energy transition and green products initiatives will complement the recycling industry and promote sustainability.  

Impact of decarbonisation efforts 

The strides made towards decarbonising the nonferrous metals industry are palpable, with each passing year bringing fresh innovations to the forefront, noted Salman Shaban, Director, Lucky Star Alloys. He highlighted the surge in sustainable practices, which is set to drive demand for metals, particularly copper and aluminum. As upstream segments of the value chain increasingly mandate low-carbon metals, this shift is expected to intensify.

Moreover, the idea of global and local interests, often termed 'glocalization,' is breathing new life into Small and Medium-Sized Industries (SMIs), bolstering the availability of essential non-ferrous raw materials. “Coupled with cutting-edge technological capabilities, end-users are now equipped to handle larger volumes of post-consumer recyclables. Stringent regulations in the mining and primary sectors are also serving as a catalyst for the uptick in demand for nonferrous metals,” he said, adding, “This multifaceted transformation is not only reshaping the industry but also heralding a more sustainable future for metal production and consumption” 

 Speaking about the factors affecting supply-demand, Shaban said, In the Middle East, the nonferrous metals supply sector is at a pivotal juncture. Domestically, regional economies are adapting to new trade regulations aimed at bolstering their local Small and Medium-Sized Industries (SMIs). However, these regulations come with a caveat: processors and traders are now required to either supply to local mills or to transform raw materials into semi-finished or finished products before exportation.” 

“Simultaneously, on the global stage,” he said, “The demand for low-carbon metals from the secondary metals industry has reached unprecedented heights. This surge in demand is serving as a powerful incentive for suppliers to ramp up their capacities, signaling a transformative shift in the industry's dynamics. These converging factors are reshaping the landscape of nonferrous metals supply in the Middle East and painting a vibrant picture of the region's evolving economic ecosystem.” 

Evolving landscape of environmental regulations 

Environmental regulations and sustainability initiatives are also influencing the non-ferrous metals market. “While we're gaining a deeper understanding of carbon-based regulations in developed regions, such as CBAM, GRI 207, Carbon Tracking, and ESG Reporting, their full impact on decision-making in the Middle East's nonferrous markets has yet to materialise,” noted Shaban. 

“For instance, the EU was set to implement the Carbon Border Adjustment Mechanism (CBAM) for aluminum and steel exports starting October 2023 and it remained uncertain if it would encompass the entire value chain of the non ferrous industry. Nonetheless, there's an unmistakable surge in end users conducting their own ESG, QHSE, and Scope 1, 2, 3 audits to meet internal carbon tracking requirements.” This meticulous approach serves as a filtering mechanism, enabling them to select suppliers with greater scrutiny than ever before. The evolving landscape of carbon regulations is poised to introduce a new dimension to the nonferrous markets in the Middle East, calling for strategic adaptations in the industry's approach, he pointed out. 

Price volatility 

He commented, “Global trade dynamics and tariffs have had significant impacts on the non-ferrous metal market. It has led to price volatility, shifts in supply chains, impact on production costs, market access and export opportunities, uncertainty and investment decisions, compliance and administrative burdens, market speculation and hedging, government intervention and policy response.” 

Bearish outlook 

Mae Dela Cruz, Executive Director of Sayed Metal, expressed a bearish outlook for the industry, remarking "The global demand for non-ferrous metals appears to be weak and may remain insubstantial until the end of 2023." She offered her insights on the prevailing sentiment in the Western world concerning global non-ferrous metal consumption. She attributed the downturn to macroeconomic factors, primarily the fallout from Russia's initial invasion of Ukraine. She pointed to a lack of momentum in the primary consuming market, exacerbated by high inventory costs due to inflation and interest rates. This combination has resulted in a diminished appetite for new materials. 

“The automotive and construction sectors have played pivotal roles in shaping the current demand for non-ferrous metals. At the outset of the year, non-ferrous inventories were abundant. Participants adopted a cautious stance toward maintaining excessive stocks due to the costly nature of inventory management. This abundance of materials, coupled with reluctance among manufacturers to add to their inventories, has contributed to the market's woes,” she said. 

Pain points 

The slump in construction markets across Europe, China, and the USA has further dampened demand for non-ferrous metals, particularly aluminum and copper. The struggling property market is poised to decline further as high-interest rates make borrowing prohibitively expensive, she noted. While the automotive sector has shown signs of improvement, with increased vehicle sales in major global markets during the first half of 2023 compared to the previous year, uncertainties loom on the horizon. Production may have surged due to backlogs, but sustained demand remains uncertain, given the prevailing high-interest rates and challenging credit conditions.

Regulatory challenges

Amid these challenges, the non-ferrous metals market is also being influenced by environmental regulations and sustainability initiatives.  Dela Cruz also expressed concern over the antidumping duties and other regulations in the pipeline. The European Union (EU) is contemplating the imposition of anti-dumping duties on electric vehicles (EVs) from China. European Commission President Ursula Von Der Leyen recently mentioned launching an anti-subsidy investigation into Chinese EVs, a move that could trigger retaliatory measures affecting the EU's car industry, a significant export market. “China, a major supplier of crucial raw materials for the energy transition, has imposed export controls on gallium and germanium as of August 1, 2023. Exporters must adhere to specific export licensing procedures. While this move has raised concerns, consuming countries are diversifying their supply sources and exploring recycling options, somewhat mitigating the immediate impact,” she noted. 

She also drew attention to the European Commission’s proposal to introduce new regulations to improve recycling rates for end-of-life vehicles (ELVs), with a focus on critical raw materials used in batteries. These regulations aim to collect and recycle up to 350 tonnes of rare earth elements by 2035, along with significant quantities of other materials, such as plastics, steel, aluminum, copper, cobalt, lithium, nickel, and graphite.

“However, the European Automotive Industry Association (ACEA) has expressed concerns about the feasibility of these recycling targets, citing imbalances in supply and demand and potential complications with existing rules,” she said. 

Many challenges ahead

As we look ahead, the non-ferrous metals market faces numerous challenges. The overall outlook for the industry remains bleak in the near term, marked by instability and pressure. The Federal Reserve's warnings of further interest rate hikes suggest that rates are likely to remain elevated, making non-ferrous metals more expensive for overseas buyers. This situation has driven the U.S. dollar to its peak, further weighing on commodity prices. “Investors have sought refuge in the dollar due to the anticipation of higher U.S. interest rates. However, the market's trajectory could shift swiftly if Chinese economic activity rebounds or if demand strengthens elsewhere, driven by positive market sentiment.” 

Modest gains expected

Natalie Scott-Gray, Senior Metals Analyst, EMEA & Asia, StoneX, forecast that demand for aluminium and copper will record modest gains on a Y/Y basis in 2023, outperforming demand growth in 2022, albeit only just and from a low base. “While traditional demand sectors such as construction and industrial take a back seat this year, given that global manufacturing activity (PMI) has remained in contractionary territory over the last twelve months, a bright spot has arisen for these metals via their use in the green transition.” 

Speaking about the demand on a regional basis, she said, “Despite lower-than-expected growth in China this year, we forecast that China will be the key driver behind consumption in 2023, while demand ex-China will be led by Asia, which will fight to offset dampened demand in the western developed economies as the impact of higher interest rates constricts consumer appetites.” 

Impact of global trade dynamics and tariffs  

Scott-Gray noted: One of the largest shifts this year has come from China dropping its zero-tolerance stance on COVID-19, allowing global supply chains to normalise, which has supported not only the supply side of the equation, but similarly consumption for products with pent-up demand, such as automotives. “Meanwhile, there have been alterations in trade routes due to sanctions and voluntary avoidance of Russian-origin metals. The trade relationship between China and Russia, in particular, has seen accelerated growth as a result.”   Additionally, the combination of these sanctions and a rising natural resource protectionism mindset, has led to mounting uncertainty regarding the accuracy of global benchmark pricing for nickel and aluminum, she pointed out. 

Macro headwinds to continue 

She remarked that the outlook is modest, with macro headwinds (over the last 18 months) likely to remain in the near-term, given cautious western central banks holding interest rates higher-for-longer, while the outlook within China remains uncertain, given multi-year property woes and growing concerns over debt. “In addition to this, the fundamental outlook for the non-ferrous metals are set to weaken Y/Y, with supply growth outpacing that of demand. While opportunities for innovation continue to support non-ferrous metals with green applications, risks to the outlook appear greater, especially as 2024 will be a U.S. election year, during a period in which geopolitical tensions between the west and east are fraught.”

Recent price trends in the Middle East

Scott-Gray offered insights into the Middle Eastern market. “With fewer than four months of 2023 left, the base metals are on track to record a second consecutive year as the worst performing commodity sector, with a year-to-date (YTD) decline of 14 per cent. As it stands, tin and copper are the only two metals recording a price gain in 2023, while the rest of the suite has been in negative territory since end-April. Growing uncertainty in the market and indeed for the demand picture has limited prices from significantly trending in one direction or the other of late, with copper a key example, in which investment firm net speculative positions (both gross long and short) have been building at similar rates.” 

Giving an overview of the U.S. market, Joe Pickard, Chief Economist, ISRI, said, “For U.S. recyclers of copper and aluminum, 2023 has been a more challenging year than last year or 2021. As the COVID-19 pandemic created a lot of pent-up demand, business conditions ramped up in 2021 but have subsequently been cooling. Slower U.S. manufacturing growth has contributed to softer nonferrous metal markets, including inconsistent auto production volumes (made worse by the current United Auto Workers strike) and mixed signals from the housing market as interest rates have increased.” He further added that weaker overseas demand from China this year as their property sector has deteriorated is also playing a factor.

For nonferrous metal recyclers, tariffs have not been playing a significant role this year but shifting global trade patterns have become increasingly important. “India has become our largest export market for recycled aluminum and other commodities, and improved demand from India, Malaysia, Thailand, and other Asian markets have helped to drive U.S. recycled aluminum exports higher this year.” In contrast, U.S. recycled copper exports are down 11 per cent this year due in part to weaker demand from China, our largest export destination for recycled copper, he pointed out. “Regional trade patterns are taking on increased significance as well, with Canada and Mexico growing in significance as market participants look to secure their supply chains.” 

However, Pickard painted an optimistic outlook in the long run. “Despite the short-term challenges that nonferrous metal recyclers are facing, the longer-term outlook is extremely positive as manufacturers and consumer brands look to increase their use of recycled materials and as manufacturers in the United States expand their production capacity for aluminum, copper, and other metals.”