Key Points
While US President Donald Trump’s 50% tariff on aluminum imports aims to revive factories, there could be a greener, more profitable boom in the country’s scrapyards. Protectionist trade policies, which often oppose environmental goals, actually build economic cases for recycling millions of tons of scrap metal each year. “If the US administration wants to improve independence in aluminum, the quickest way to do so is to maintain more scrap in the US and support recycling capabilities,” said Trond Olaf Christophersen, chief financial officer at Hydro, one of the world’s largest aluminum smelters. According to the International Aluminum Institute, an industry association, metal recycling makes it more environmentally friendly, as it only consumes 5% of the energy needed to produce the same amount of nuclear aluminum in a smelter. According to the US Department of Commerce, tariffs on aluminum consumers The US faces a major aluminum deficit and relies on an average annual import of 5.5 million tonnes to meet demand. But Trump’s new tariffs have increased import costs and dramatically surged the Midwest premium (a key benchmark for domestic prices) from the 2024 level. This provided pimples to some domestic producers, but pushed up costs through the supply chain. Downstream users like PepsiCo and Campbell Soup are increasing prices everything from beverage cans to tin steel. A price shock is that it forces downstream manufacturers to seek replacements, leading to potential “demand destruction.” That pressure suggests by Hydro’s Christophersen could strengthen the cost-effective case of recycled aluminum. While the US imposes a 50% tariff on primary aluminum, the (non)obvious alternative is that scrap metals are not subject to the same obligation. This disparity creates a great economic incentive for domestic recycling plants, allowing remed metals to be sold at high prices ordered by tariff protected nuclear aluminum. Dynamics are very powerful and can reverse global trade flows. Until recently, the US, which exported about 2 million tons of scrap each year, has begun exports much less, not only due to a shortage of supply, but also due to a diversion to supply local recycling capacity. “There is a clear incentive to export scrap from Europe to the US,” said Christophersen of Hydro, but said volatility in the transatlantic trade environment limits these flows. “The trade environment is very volatile and we don’t see many scrap exports (from Europe at this time), as Europe is completely dependent on where it ends (with the US) in regards to tariffs,” he added. “It will determine whether this will continue to be an incentive or not.” According to Hydro, recycling all the scraps in the US would amount to building four new major smelters, which could meet “about half of the import needs that the US currently has.” Policy shifts such as export bans and tariffs on scrap will keep this raw material within the US and accelerate the recycling trend. The persuasive business case of building a new recycling facility requires only about 10% of your capital expenditure. It can be completed in 1-2 years. Hydro completed the construction of its third aluminum recycling plant in Casopolis, Michigan in November 2023, bringing its total production capacity to more than 300,000 tons per year. The low energy requirements associated with primary aluminum production are also particularly attractive as US industries are increasingly competing for electricity thanks to the surge in energy demand in AI data centers. Major manufacturers such as BMW and Hyundai have shown “many interest” in sourcing low-carbon aluminum, according to Bank of America analysts Michael Widmer and Francisco Blanche. Tariffs cause short-term pain and threaten billions of dollars in investments, but they may be misdiagnosing more sustainable and independent courses for the industry. “Considering that the US administration has a policy to improve its independence in materials,” Christophersen concluded.
