Secondary Smelting and Refining of Nonferrous Metals

SIC 3341

Companies in this industry

Industry report:

This classification comprises establishments primarily engaged in recovering nonferrous metals and alloys from new and used scrap and dross, or in producing alloys from purchased refined metals. This industry includes establishments engaged in both the recovery and alloying of precious metals. Also included in this industry are plants involved in the recovery of tin through secondary smelting and refining, as well as by chemical processes. Excluded from this classification are establishments primarily engaged in assembling, sorting, and breaking up scrap metal without smelting and refining the metal. These establishments are classified in SIC 5093: Scrap and Waste Materials.

Industry Snapshot

Metal, utilized by nearly every manufacturing industry in the United States and abroad, is produced through two basic methods: primary and secondary. Primary manufacturers produce metal by subjecting particular extracted ores to various metallurgical processes, creating metal in large block or bar form. Secondary manufacturers smelt, refine, and sometimes blend metal recovered from either the shaping and trimming of primary metal during production and fabrication or from recycled metal. The secondary smelting and refining of nonferrous metals, as defined by SIC 3341, comprises the secondary production of metals that do not contain iron, such as aluminum, copper, gold, lead, nickel, silver, tin, and zinc. These metals are used in a wide variety of manufactured products, including ammunition, beverage cans, coins, automobiles, household appliances, and a wealth of other products that encompass the breadth of U.S. manufacturing activity.
Copper, possessing superior electrical conductivity, is a strong, durable metal used in a variety of structural applications, as well as for power, lighting, and communications transmissions. Domestically, the major markets for copper are construction, electrical and electronics, and industrial machinery and equipment.

Aluminum, the most widely used nonferrous metal, possesses several positive attributes, such as light weight, corrosion resistance, and high electrical and thermal conductivity that make the metal suitable for a variety of applications. Major end-use markets include the transportation sector, the container and packaging sector, the buildings and construction sector, and the electrical sector.

Lead is primarily used for the manufacture of storage batteries, which in turn are incorporated into automobile ignition starters, uninterruptible power supplies for computer systems, and standby power supplies for emergency lighting systems and telephones. Other market sectors that purchase lead include paint and glass manufacturers and building products manufacturers.

Zinc is primarily used to galvanize products found in the automobile, steel, and construction industries, but a greater percentage of secondary zinc is used to produce brass and bronze, as well as assorted chemicals and dusts. Additional applications include the blending of zinc-based, die-cast alloys and brass alloys.

According to the U.S. Census Bureau, the value of products shipped for secondary smelting of aluminum, copper, and other nonferrous metals totaled $6.84 billion, $1.12 billion, and $10.25 billion, for a total of $18.21 billion for the entire category. The industry consists of the aggregate value of shipments primarily derived from the production of the industry's five key products: secondary aluminum, secondary precious metals (gold, silver, platinum), secondary copper, secondary lead, and secondary zinc. The industry slumped in the early 2000s because of poor economic conditions and oversupply but recovered in the middle of the decade in response to greater global demand from emerging markets. During 2007 and 2008, prices generally trended higher--particularly for copper and gold. Some markets, such as aluminum, were negatively affected by the poor economic condition beginning in the final quarter of 2008, which extended through 2009.

Organization and Structure

Almost 360 establishments operated in the secondary smelting and refining of nonferrous metals industry in 2009, according to Dun and Bradstreet. California, Texas, and Pennsylvania had the most firms.

The expenses incurred from operating a secondary smelting and refining facility were substantially higher than the amount of money required to operate the average manufacturing facility in the United States. This disparity was most evident in the average cost per establishment, that is, the average amount of money paid for raw manufacturing materials as well as production costs. For example, to produce aluminum requires a significant amount of electricity. Therefore, aluminum margins are highly dependent on utility costs. The cost of production also depends on the quality of materials being processed. Lower grade materials tend to be more expensive to process than higher grade materials.

Background and Development

In the historiography of secondary smelting and refining, one chronicler traces the origins of recovering scrap metal to the seventh descendent of Adam, back to the founder of the iron and steel industry, and by implication, the founder of the scrap metal industry--Tubal-Cain. The writer then proceeds to chart the utilization of scrap metal throughout the span of civilization, making references along the way to documented accounts of scrap metal usage by such notable personages as Moses, Chaucer, Shakespeare, Paul Revere, Captain Kidd, and Thoreau. While this exploration into the depths of scrap metal's history may strike some as overindulgent, it does indicate the pervasiveness of secondary metal in the history of human existence. It also suggests that scrap metal has been used as long as metal has been used by humans.

Obviously, the processing of scrap in the days of Tubal-Cain bore no resemblance to the modern secondary metal industry. The smelting and refining of scrap metal as an organized and structured industry was a modern creation of the United States. It formed in the early 1900s as secondary smelting and refining manufacturers began to shed their image as junk peddlers, and gradually became regarded as legitimate operators of an enterprise essential to the existence of modern manufacturing industries. This transition was hastened by the formation of the National Association of Waste Material Dealers in 1913, which gave manufacturers formalized rules of operation, a code of ethics, and uniform specifications for scrap metal production. The creation of this governing body, renamed the National Association of Secondary Material Industries (NASMI) in 1960, lent cohesion to a loosely structured group of manufacturers struggling to attain order in a rapidly changing manufacturing environment.

Although the advent of NASMI helped define and shape the industry, the smelting and refining of secondary nonferrous metals had been occurring in an industrial setting for quite some time before NASMI came into existence. No statistical record of scrap consumption in the United States exists prior to 1900, but in the first year figures were recorded, U.S. manufacturers consumed 5.1 million gross tons of ferrous and nonferrous secondary metal. Indeed, the first American scrap metal company, Cline & Bernheim, based in Nashville, Tennessee, had begun operating nearly 40 years before industry-wide consumption figures were recorded in 1862. According to these records, the first market coverage of the scrap industry was published in 1865, when the Commercial Bulletin of Boston began providing scrap metal prices. Even further back in time, the first commercial use of scrap metal in the United States occurred at an iron works in Lynn, Massachusetts, in 1642.

Although some of these early uses of scrap metal were of the ferrous variety, the tradition of scrap metal usage had its roots stretching back to the founding of the United States. Accordingly, the scrap metal industry gathered more than a modicum of momentum by the time NASMI emerged. Once it did emerge, however, the modern version of the secondary nonferrous metal industry began and the recovery, smelting, and refining of such metals became distinguished from the production of primary metals, rather than lumped together under the more general and generic metal industry umbrella.

Following the founding of NASMI, secondary nonferrous production occurred at a predictable, steady rate, without any significant influence from external market forces that would have otherwise proportionately boosted the industry's production volume. Military build-up during World War I, which had a positive effect on many manufacturing industries, provided less than its expected impact on secondary metal producers, largely due to the conspicuous absence of wartime scrap metal drives. A tremendous increase in secondary nonferrous metal production did occur however, as a result of America's entrance into World War II. By early summer in 1942, the first summer after the Japanese bombed Pearl Harbor, the nation embarked on a virtually uninterrupted campaign to recover scrap metal, elevating the importance of secondary producers in the metal manufacturing industry.

During the immediate post-war years, a majority of American manufacturing industries flourished, and the secondary nonferrous metal industry, as a supplier of the raw material for much of the accelerated production, shared in the explosive growth of the American economy. By 1950, primary manufacturers of nonferrous metals held a commanding lead in the global market, producing nearly half the world's supply of refined copper, aluminum, and zinc, and more than 25 percent of the world's supply of lead. Secondary producers of these metals, who benefited from the crumbs of the prodigious production volume, were well positioned to profit from the increased demand for nonferrous metals, converting "old" scrap, or metal recovered from recycled products, and converting "new" scrap gleaned from the trimming and shaping of primary nonferrous ingot (referred to as "home" scrap).

This closely knit, interdependent relationship secondary producers maintained within the nonferrous metal industry invigorated production during robust economic conditions, but also made industry participants vulnerable to the vagaries of the overall metal industry. Although conditions were favorable in the 1950s, several portentous developments arose during this time that would create a somewhat bleaker future for all manufacturers of nonferrous metal.

The consumption of nonferrous metals increased exponentially since the turn of the century, fueled by a rapidly growing population and its need for products manufactured with this type of metal. By the time the United States entered World War II, this increased demand had depleted the country's metal ore reserves to the extent that the self-sufficient production of several key nonferrous metals, such as zinc and lead, was no longer possible. To compound this problem, the manufacturing of another key nonferrous metal, aluminum, required an ore more commonly found in countries other than the United States.

During the 1950s, this development persuaded many primary manufacturers of nonferrous metals to either affiliate with foreign metal manufacturers to meet existing U.S. demand or to establish wholly owned operations overseas, where ore deposits were plentiful. While this expansion into foreign metal markets narrowed the gap between supply and demand and sparked the overall metal industry's growth, it also fostered the growth of the global nonferrous metal market, establishing the first manufacturing facilities in less-developed countries and encouraging output in more sophisticated, foreign markets. Repercussions from this shift overseas were not immediate, but in the years ahead, the evolution of a genuine global metal industry would create a highly competitive nonferrous metal market.

Another development affecting industry participants was a technological innovation developed by primary manufacturers in the 1950s that promised to impinge directly on the demand for secondary nonferrous metal. The underlying principle behind this innovation was relatively simple: introduce oxygen into the furnaces in which pig iron is converted to steel.

The addition of oxygen quickened the conversion process, reducing the energy requirements of metal production. Most harmful to secondary producers, however, was that the process required far less scrap metal with which to manufacture ingot. Without oxygen, primary manufacturers needed a high percentage of scrap metal to efficiently produce metal, but with oxygen the proportion of scrap metal dropped to as low as 40 percent. Initially, steel manufacturers employed this new process, but by the mid- and late 1960s, the utilization of oxygen in the production of nonferrous metals had begun, as aluminum manufacturers also adopted the process. Of course, the use of oxygen also reduced the conversion time in the production of secondary metals, but the losses suffered as a result of the diminished role scrap metal played in the manufacturing of primary metal were significant.

Fortunately for secondary metal producers, the popularity of this new production method was roughly concurrent with the increased interest in consumer product recycling efforts, which bolstered the industry's production output and marked the beginning of a movement that would serve as a linchpin to the industry's existence and success into the 1990s and the next century. To varying degrees, the recycling of used products and materials had been occurring for many decades prior to the late 1960s and early 1970s--the existence of the secondary metal industry itself, made up of former junk peddlers, was a testament to the long tradition of recycling. These efforts were intensified due to the growing outcry against pollution and waste, as landfills dotting the nation's landscape brimmed with refuse. Also, recycling had been generally limited to the recovery of industrial or commercial by-products, not the recycling of consumer products such as storage batteries, aluminum, and tin cans.

Once recycling began in earnest, secondary producers of nonferrous metals began to play a more dominant role in the overall nonferrous metals industry, outpacing primary manufacturers in terms of production volume and capitalizing on governmental efforts aimed at reducing the amount of national waste. Federally led and financed attempts to reduce waste received an initial push from the creation of the Office of Solid Waste Management in 1965, which was strengthened in 1970 by the promulgation of the Resource Recovery Act. The Resource Recovery Act of 1970 authorized a three-year budget of $461 million, but, most important to secondary nonferrous metal producers, the act changed the Office of Solid Waste Management's primary objective from the sanitary dumping of solid wastes to the recycling of those wastes. In a short time, the effect of this concerted push toward recovering solid wastes improved the secondary nonferrous industry's position, driving scrap manufacturer's production output upward. By 1971, roughly 50 percent of the total lead consumption in the United States was supplied by secondary metal producers and the proportional representation of other secondary nonferrous metals was no less impressive: 45 percent of secondary copper, 35 percent of secondary aluminum, and 23 percent of secondary zinc.

By the mid-1970s, however, a recession and a worldwide energy crisis nearly crippled all sectors of the ferrous and nonferrous metal industry, as successive oil shocks shook the foundations of an industry that relied on relatively large amounts of energy to exist. Indeed, the effects of the energy crises plagued metal manufacturers for the rest of the decade and stood as a turning point for the health of metal manufacturers worldwide. The annual growth rates in the consumption of nonferrous metals from 1979 to 1988 stood well below the pace recorded from 1950 to 1974. The annual consumption rate of aluminum worldwide from 1950 to 1974 was nine percent, while from 1979 to 1988 the rate dropped to 2.3 percent; copper fell from 3.9 percent to 1.1 percent; lead from 2.7 percent to 0.5 percent; and zinc from 3.9 percent to 1.2 percent.

Entering the 1980s, a period of corporate restructuring began, as companies purchased, sold, and merged operations to enhance their competitiveness. Still, the key metals within the industry were each affected, either negatively or positively, by conditions peculiar to their markets. The production of secondary copper suffered a decline in total shipments in the early 1980s after effecting a rebound from the pernicious 1970s. By 1989, however, shipments eclipsed the one-year surge experienced at the start of the decade, as manufacturers battled difficulties associated with aging production facilities and environmental regulations. Over the entire decade, secondary production accounted for 26 percent of the total U.S. copper production, a more encouraging representation than the 20 percent share recorded from 1975 to 1979.

Secondary aluminum production fared comparatively better during the 1980s, increasing 40 percent over the decade. Hampered by decreasing primary production of aluminum in the United States and a nearly glutted beverage can market, secondary aluminum manufacturers also experienced capricious fluctuations in demand during much of the decade. Nevertheless, secondary aluminum producers concluded the 1980s with three solid years of production output, during which they recorded much of the production growth of the decade.

Primary lead manufacturers, struggling with the sharply decreased demand for tetraethyl lead (TEL), which is used to produce leaded gasoline, witnessed secondary manufacturers of lead increase their representation of total lead consumption during the 1980s. The reclamation of lead acid storage batteries, the largest market for lead and typically recyclable, elevated the importance of the secondary lead industry. In 1980, primary and secondary lead production was about equally split, with secondary producers supplying half the nation's total lead. By the end of the decade, however, secondary lead manufacturers supplied approximately 65 percent of the total lead consumed in the United States.

Secondary zinc manufacturers also figured more prominently within their nonferrous metal niche during the 1980s. The demand for zinc, both from primary and secondary suppliers, increased throughout much of the decade, excluding a temporary decline in 1982. Overall consumption rose 21 percent over the course of the decade, while secondary zinc producers increased their share of the total zinc production to 23 percent.

As the secondary smelting and refining industry entered the late 1990s, an intensified interest in recycling by both the consumer and industrial sectors buoyed the production output of industry participants. From 1990 to 1997, shipments of nonferrous castings rose nine percent.

While secondary aluminum production accounted for only about 25 percent of total supply in 1989, by 1997, secondary production--at 3.76 million metric tons (mmt)--had for the first time exceeded primary production, which totaled only 3.6 mmt. One of the most important factors spurring increased secondary aluminum production was the 95 percent savings realized in energy costs.

Total value of shipments in 2006 was $12.5 billion. Aluminum generated $6.7 billion in revenues, and copper totaled revenues of $1.1 billion.

The nonferrous metals market suffered a slump in the early 2000s with a lack of demand coupled with overcapacity and oversupply, keeping prices down. The industry picked up in the United States and abroad through the middle of the decade, forcing prices for nonferrous metals to record highs in 2006 and 2007. Although demand dropped in the U.S. later in the decade, burgeoning demand in emerging markets such as Brazil, Russia, India, and China kept prices strong during the first half of 2008.

Current Conditions

During the second half of 2008, the industry began to feel the effects of the oncoming economic recession combined with high fuel prices. In 2009, the price of copper fell from record highs of over $4.00 a pound to less than $1.75 a pound; the price of aluminum also dropped. Production declined overall but demand declined significantly, leaving an abundance of reserves.

In 2008 production of secondary aluminum fell to 1.34 mmt, down from 1.6 mmt in 2007. Production fell again in 2009 to an estimated 1.26 mmt. Secondary refining of copper increased in 2008 and 2009 to 53,000 metric tons (mt) and 55,000 mt, up from 46 mt. After peaking at 183,000 tons in 2005, production of copper from scrap fell significantly in 2006. Reaching 166,000 tons in 2008, production declined again in 2009 to 160,000 tons. The United States had no active nickel mines in 2009.

Gold from scrap saw a sharp increase during the late 2000s as the economic recession motivated consumers to trade out gold for cash. Secondary refinery of gold more than doubled between 2006 and 2009, jumping from 89,000 tons to 190,000 tons. Gold prices also moved upward during the latter half of the 2000s, rising from an average price per ounce of $606 in 2006 to an estimated average of $950 per ounce in 2009.

In 2009, 15 of the 21 U.S. plants that produced secondary lead accounted for 99 percent of secondary production. These 15 facilities had a combined capacity of approximately 15,000 tons annually. In 2008 and 2009, the United States produced 1.15 mmt and an estimated 1.12 mmt of secondary lead from scrap. Production of secondary zinc reached a five-year high of 161,000 tons in 2008 but dropped to an estimated 115,000 tons in 2009. Zinc prices also fell dramatically, from an average of $1.589 per pound in 2006 to an estimated $0.78 in 2009.

Industry Leaders

Commercial Metals Company of Irving, Texas, which had 40 secondary metals processing plants, totaled $6.79 billion in sales in 2009 from its primary and secondary metals operations.

Wabash Alloys of Wabash, Indiana, sold by Connell L.P. of Boston, Massachusetts, to aluminum producer Aleris in 2007, maintained eight facilities that together produced more than one billion pounds of aluminum alloy annually. Wabash had 2007 sales of $900 million; the company emerged from Chapter 11 bankruptcy in 2010.

Workforce

Total employment in the secondary smelting and refining industry dropped throughout much of the 1980s, with a slight rise occurring during the late 1980s and into the 1990s. In 1982, the industry's total employment stood at 19,200, then slipped to 12,500 by 1987. Perhaps fueled to some degree by the increasing popularity of recycling, the late 1990s saw a sharp uptrend in the size of the industry's workforce, which swelled to about 20,600 by 1997 before declining to 18,770 in 2001. In 2009, the 360 establishments in this industry employed 12,500 people.

America and the World

Most nonferrous metal production and consumption was driven by China. In 2009, China produced 13 mmt of aluminum, compared to 1.71 mmt for the United States, the world's fifth largest producer. China produced 5.32 mmt of copper, compared to U.S. production of 1.19 mmt, making the United States the third largest producer, behind Peru. China produced 2.8 mmt of zinc; the United States was fourth in production, with 690,000 tons, following Peru and Australia.

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