By Declan Conway
OSLO, May 26 (Reuters) - Strong Chinese import demand for aluminium scrap will cap output for secondary aluminium makers in the United States, as producers tackle pressured profit margins amid rising scrap prices, a U.S. secondary smelter said on Monday.
"A shortage of aluminium scrap is in large part due to the continued demand for exports to the Far East," Harvey Rosen, vice president at Alpert & Alpert told an international conference.
"Scrap continues to be in very short supply with price pressure driven by a strong export market, particularly China."
Rosen told delegates at the Bureau of International Recycling's (BIR) spring convention in Oslo that China, the world's third-largest secondary aluminium producer, had become increasingly more active in importing scrap from the United States.
China imported 3.7 million tonnes of non-ferrous scrap in 2002 -- with a third originating from the United States, he said.
China imported more than 85,000 tonnes of aluminium scrap from the United States in the first two months of this year versus around 67,500 in the same period in 2002.
"The supply side has shrunk so much that we have experienced a severe scrap shortage," Rosen said.
"This was made even more difficult by an unusually heavy winter in the mid-west and east United States, making the collection of scrap even more difficult than typical winter collection rates. As a result, scrap prices increased more than alloy ingot prices, squeezing secondary profit margins again."
Secondary aluminium is produced in ingot form and is mostly consumed by the auto industry.
According to industry figures from the American Foundry Association in 2001, Rosen said the United States was the world's largest ingot maker at more than 1.7 million tonnes, followed by Japan at almost 1.2 million and China in third with almost 900,000.
"It is expected that Chinese demand will continue to increase for the next ten years and that will be a continued demand for aluminium scrap to feed the growing secondary aluminium industry," Rosen said.
FEELING THE PINCH
To combat the shortage of scrap, U.S. secondary smelters have cut production, choosing to cap their output rather than continue producing ingot with little or no margins, Rosen said.
"The high price of scrap in the first qurter of 2003 began to force an increase in secondary alloy ingot prices," he said.
"As more grades of scrap were exported, local scrap dealers were asking, and getting, higher prices."
One smelter in the mid-west, Superior Alloy, had temporarily shut two of its four furnaces recently, effectively halving its capacity to produce 16 million lb a month of aluminium ingot.
The move follows that of the largest producer in the U.S., Wabash Alloys, which had closed several plants, currently operating at a reduced level of 100 million lb a month from a peak of 147 million a couple of years ago.
The problem had been exacerbated with reduced levels of scrap generation from depressed manufacturing in auto and construction sectors, Rosen said.
"Scrap will remain in tight supply and margins in the secondary business will be less than producers would like to enjoy," he said.