Virus disrupts typical spring US UBC patterns

US used aluminum beverage can (UBC) supply remains uncertain going into April as scrap yards scramble to protect employees from exposure to the conoravirus and some states halt deposit programs, jeopardizing typically reliable sources of can scrap for rolling mills.

Michigan, the second largest US container deposit state by volume, confirmed to Argus that it has temporarily suspended its can redemption program and will likely keep it inactive until at least 13 April, the current expiration of the state's stay-at-home orders for nonessential business.

The state with the largest container deposit program, California, would not confirm or deny whether it had suspended its program in the wake of the coronavirus. But UBC buyers from two US mills said that, in effect, it had.

Deposit states play a key role in keeping UBC supply stable because incentives to return cans to the state do not change with the market. Even when LME aluminum prices plummet, states continue to pay the same amount to recover the containers which they, in turn, sell on contract to rolling mills.

In states without deposit programs, UBC supply fluctuates as private scrap dealers adjust scale buying prices which change with physical demand and LME aluminum prices. When scale prices drop, so does supply.

Midwest yard prices for UBCs, the price dealers pay walk-up sellers, were assessed at 26-30¢/lb last week, or their lowest level since Argus began tracking them in late 2018.

Brokers that call dealers around the country to source cans for mills have noticed tighter availability to fulfill their contracts as the LME price drops and the coronavirus hits flows into yards.

"Our shipments [of UBCs] are down 80pc and we're not alone," one small broker told Argus.

US mill buying spreads for UBCs narrowed yesterday to 59-61pc of the Argus P1020 Midwest transaction price, their tightest in 2020. This means that buyers are willing to pay for scrap aluminum at prices closer to the all-in price of new aluminum, demonstrating a tight market.

The supply squeeze comes at a time when UBC availability typically increases with warmer weather and more outdoor activity that generates more beer and soft drink buying.

Dealers themselves are also responding day-by-day to a patchwork of stay-at-home orders that differ by state. Cohen Recycling in Ohio is an example of one multi-location dealer that has put a moratorium on retail buying, or purchasing scrap from the general public, including UBCs.

Still, other large multi-location dealers in the Midwest have confirmed to Argus that they are continuing retail buying for now.

"Employees use rubber gloves and masks while handling [UBCs] and we spray them down with a 50/50 bleach and water ratio and let them set for a couple of days before running them," one dealer said.

By John Betz