Hulamin serious about aluminium recycling

Aluminium producer Hulamin is taking a serious stab at securing a substantial slice of its raw material needs from recycling.

This could be a game changer for cost-efficient supply arrangements. Hulamin is working hard to change market perceptions that its beneficiation model is not competitive in SA's high-cost industrial environment.

Its short-term supply arrangements appear to be in order. Slab supply from the Bayside smelter in Richards Bay has been extended to March 2014 and the melting ingot supply contract from Hillside is to be renegotiated in 2015. The company also imports extrusion billet from the Middle East.

For the longer term, though, Hulamin CE Richard Jacob believes the company can source as much as 25% of its metal inputs from recycling. This may sound fanciful, but Hulamin's investment presentation notes there is a pool of 20000t-30000t of used beverage cans every year, as well as 10000t-15000t of class scrap (can-maker skeletons and other plant scrap). These hold a potential market value of R800m in aluminium content.

US-based aluminium producer Novelis has set the benchmark for the recycling supply model. Close to 40% of its 3Mt annual shipments are "recreated from material already in the world today". Novelis aims to reach 80% recycled metal input across its aluminium products by 2020.

There is clearly a way to go before Hulamin can emulate the Novelis recycling ratio. There is already a high recycling rate for used beverage cans in SA, and a target of 70% has been pencilled in for 2017. But for Hulamin to extract value from the recycling process, a scrap/used beverage can infrastructure or organisation needs to be formalised - possibly with "preferred customer" status for scrap dealers.

Hulamin will also have to invest R200m in production facilities over two years, a substantial amount which is equivalent to almost 15% of the company's market capitalisation.

Jacob points out that the beauty of aluminium is that it can be brought back into the recycling process infinitely. "It has a life of its own and is easily the most valuable product in the recycle waste stream." The introduction of aluminium beverage cans in SA and Africa provides a huge recycling sourcing opportunity for Hulamin.

Jacob says the possible margin enhancement through recycling supply initiatives is not quantifiable at this stage. "It depends on what price we end up paying for scrap aluminium. And then there is a process of cleaning the cans, melting them down and deoxidising them. In the end it should be more attractive for our margins."

Jacob says the more important issue is that the recycling process has a strong buy-in, with a potential margin for everyone from the scrap collector to the scrap merchant, as well as any middle men.

It should then pay dividends for Hulamin to pursue efforts to build supply-side recycling infrastructure, especially as the company was awarded a lucrative supply agreement with packaging giant Nampak last November for the supply of 28000t of aluminium can body stock from 2013 to 2015.

Jacob notes the company has made good progress in developing the product to international quality specifications, and has concluded successful commercial trials in Europe.

Local commercial qualification is due to start in the third quarter of 2013. The three-year supply deal will account for 40% Nampak's can stock requirements - an attractive number, considering how rapidly the packaging group is rolling into new African markets.

If the recycling initiative finds traction quickly, it may not be a pipe dream for Hulamin to snag a large portion of Nampak's beverages business. Says Jacob: "Our first commercial supply of cans starts in September, and we are aspiring to eventually supply 100% of Nampak's business."