Scrap exports from the United States have been falling, in some cases to record-low levels. The impact is being felt across the board, both for ferrous exports—iron and steel—as well as non-ferrous exports, notably aluminum. The aluminum scrap situation is particularly interesting. The vanishing scrap exports are not due to slack overseas demand but increased domestic buying. Stateside consumption of aluminum scrap is motivated not only by manufacturers’ interest in using scrap as an input but also in accumulating scrap as a hedge against coming price increases in new aluminum. There is simply not enough aluminum scrap to be found for exporting. The possibility of primary aluminum price increases comes as producers scale back on capacity following a couple of years of price decreases. The end result may be that prices for both new and scrap aluminum will rise in the coming months. “Aluminum is lightweight, ductile, malleable, and corrosion resistant, making it a popular choice with manufacturers,” said Joseph Pickard, chief economist at the Institute of Scrap Recycling Industries (ISRI). “Aluminum is also inherently recyclable and recycled aluminum is highly valued as a raw material input for new aluminum production.” Pickard estimated that aluminum scrap represented 54 percent of total U.S. aluminum consumption in 2012. Total scrap exports in February of this year, the latest month for which statistics are available, fell to their lowest levels since 2006, according to numbers supplied by the United States Department of Commerce. Scrap exports from the U.S. amounted to 1.3 million tons in January and then fell to 1.2 million tons in February. Scrap exports to Turkey and China as well as other major export destinations such as Taiwan, Canada, and India, fell precipitously during the first two months of this year. Exports to China hit the lowest level in 14 years. Total U.S. scrap exports hit their peak in 2011 and have been headed down since then. Exports of ferrous scrap for 2013 totaled 18.5 million tons. Those volumes represented a decline of 13.5 percent as compared to 2012. Aluminum scrap exports also witnessed a decline in 2013. The U.S. exported 4.13 billion pounds of aluminum scrap last year, down 6.3 percent, or 350 million pounds from 2012, according to the statistics of the Aluminum Association, a trade group. Total scrap exports enjoyed healthy increases from 2003 to 2011 before they started to decline. In 2003, U.S. average monthly exports of scrap totaled 950,000 tons, according to the Commerce Department statistics. That figure increased to 1.9 million tons in 2009 and peaked at 2 million tons in 2011. The numbers then declined to 1.8 million tons in 2012 and 1.6 million in 2013. Total scrap exports for January and February of 2014 were 1.3 million tons and 1.2 million tons respectively. It would appear that scrap exports are still on the decline. Results for specific export destinations follow similar patterns. Scrap exports to China peaked in 2009 with average monthly exports of 525,000 tons. In 2011, that figure had declined to 350,000 tons. This year only 90,000 tons of scrap were exported to China in January and only 52,000 in February. Scrap exports to Turkey increased between 2008 and a peak in 2012 from an average of 375,000 tons per month to 525,000 tons per month. But those figures declined to 425,000 in 2013, 300,000 tons in January 2014 and 280,000 tons in February 2014. Similar patterns prevailed for India, Canada, and Taiwan. The exception to the pattern was South Korea. In 2006, an average of 50,000 tons per month of scrap were exported to South Korea. In 2009 that figure hit 250,000 tons per month. After declining slightly in subsequent years, exports to South Korea in January of this year hit a peak of 290,000 tons before declining to 275,000 tons in February. The lower scrap export numbers almost certainly do not represent a decline in overseas demand, but, rather, increasing domestic buying. Although a clear picture has yet to emerge, it is possible aluminum scrap manufacturers are hoarding as a hedge against future price increases. Published reports indicate that there has been a drastic decrease in the supply of aluminum scrap in North America. The explanation, experts say, is that more companies are seeking to increase their usage of aluminum scrap in order to lower manufacturing costs. Aluminum is the most widely used among all the base nonferrous metals in the U.S. But a shortage of aluminum scrap means that the price will eventually rise, making it less economical to buy aluminum scrap. A situation may arise, as has happened in the past, where primary aluminum might actually become more attractive than scrap. The question still remains, how did this state of affairs come about? The chase after aluminum scrap may be anticipating a decrease in new aluminum production which may come in reaction to recent aluminum price decreases. “At the start of 2014, the aluminum market was in search of balance,” said Pickard. “While more than 5.4 million tons of aluminum are being hoarded in London Metal Exchange warehouses, world aluminum production continues to rise.” Figures from the International Aluminum Institute show that aluminum production in China alone rose by 10 percent in 2013. Increased production has depressed on aluminum market prices. The average London Metal Exchange three-month aluminum price fell from $2,049 per ton in 2012 to $1,887 in 2013. “Alcoa, Inc. expects global aluminum demand growth of seven percent in 2014,” said Pickard. “But most analysts expect the global aluminum market to remain in surplus this year. Should prices continue to fall, further production cutbacks could be on the cards.” If that happens the price of new aluminum is going to increase, making aluminum scrap that much more of an attractive commodity to manufacturers. But the run on aluminum scrap could result in price increases for that commodity as well and the continued lack of availability of aluminum scrap for export. There is one way out of this conundrum, noted Pickard: encourage more aluminum recycling.