Introduction
Amid the global trend toward decarbonization, the “greening of materials” in the manufacturing industry has become an unavoidable management issue. Aluminum, in particular, is often referred to as “canned electricity” due to the massive amount of power consumed during its refining process. However, utilizing recycled materials offers extremely high environmental superiority, capable of reducing energy consumption by approximately 97% compared to the production of new virgin ingots.
In this article, we focus on three countries: Japan, an advanced nation in aluminum recycling; China, the world’s largest producer and consumer; and Vietnam, which is rapidly increasing its presence as the leading “China Plus One” candidate. We will thoroughly compare their respective laws, technological trends, and market environments.
For procurement and purchasing managers, building a supply chain that achieves both cost competitiveness and environmental value is an urgent task. Deeply understanding the recycling situation in each country serves as a compass for avoiding future procurement risks and realizing stable material procurement. Let us unravel the structural changes behind why aluminum procurement in Vietnam is attracting attention now.
Global Decarbonization Trends and the Turning Point for the Aluminum Industry
From Virgin Ingots to Recycled Ingots: The Shortest Route to Scope 3 Reduction
Currently, many Japanese companies have set goals to reduce CO2 emissions across their entire supply chain (Scope 3). In the aluminum industry, the CO2 emissions for “virgin ingots” (virgin material)—manufactured by extracting alumina from bauxite and processing it through electrolysis—reach a global average of approximately 16.6 tons per ton of ingot. On the other hand, for “recycled ingots” (secondary alloy ingots) produced by melting scrap, emissions can be suppressed to only about 0.5 tons.
Due to this overwhelming difference in environmental performance, the movement to increase the usage ratio of recycled ingots is accelerating, particularly among automotive and electronics manufacturers. According to forecasts by the International Aluminium Institute (IAI), global aluminum demand will exceed 170 million tons annually by 2050, with approximately half of that expected to be met by recycled materials.
Resource Nationalism and the Battle for Scrap
Accompanying the surge in demand, securing aluminum scrap—the raw material—is taking on the appearance of a “battle for resources.” Previously, scrap generated in developed nations was exported to emerging nations in search of cheap labor. However, in recent years, due to amendments to the Basel Convention and tightened environmental regulations in various countries, cross-border movement is becoming increasingly restricted. Consequently, procurement managers are being forced to redefine the flow of “where scrap is generated, where it is recycled, and where it is turned into products.”
Aluminum Recycling in Japan: The Current Status of a “Model Student” and Structural Issues
The Strength and Limits of a 97% Aluminum Can Recycling Rate
Japan is one of the world’s leading advanced nations in aluminum recycling. According to the Japan Aluminum Can Recycling Association, the recycling rate for aluminum cans in FY2022 was 93.9%, maintaining a “Can to Can” rate (recycling used cans back into new cans) of approximately 70%. This high recovery system is supported by the segregation awareness of citizens and the collection infrastructure of local governments.
However, challenges remain regarding industrial aluminum. Japan’s domestic aluminum demand is approximately 4 million tons, but domestic scrap generation alone cannot cover this, leading to a 100% dependence on imports for virgin ingots. Furthermore, regarding the supply of “aluminum alloy ingots (such as ADC12)” used for automotive engines and chassis parts, the import ratio is rising year by year due to the shrinking of domestic production capacity.
Soaring Energy Costs and the Decline of Domestic Recycling Capacity
What is hitting Japan’s recycling industry hard is the soaring cost of electricity and gas. Melting aluminum requires a vast amount of thermal energy, and rising energy costs translate directly into processing costs (roll margin).
Additionally, due to labor shortages and aging facilities, the discontinuance or consolidation of domestic secondary alloy manufacturers is progressing. As a result, it is becoming difficult for the Japanese manufacturing industry to “stably procure high-quality recycled ingots domestically alone,” entering a phase where collaboration with overseas partners is essential.
Aluminum Recycling in China: Regulatory Tightening and Market Upheaval
Changes Since “National Sword”
China once accepted scrap from all over the world as the world’s largest “dumping ground,” but since the “National Sword” policy in 2017, it has completely banned the import of solid waste. This cut off the import of low-purity, miscellaneous scrap, shifting the system to accept only high-grade raw materials.
This policy change completely altered the flow of scrap worldwide. Some of the scrap that lost its destination flowed into Southeast Asia, while within China, the construction of a “domestic circulation type” recycling system is proceeding at a rapid pitch.
The 14th Five-Year Plan and Massive Domestic Demand
The Chinese government is powerfully promoting the decarbonization of the aluminum industry toward the realization of “Carbon Peak Out and Carbon Neutrality.” The National Development and Reform Commission has set a target to raise the production volume of recycled aluminum to 11.5 million tons by 2025.
Automobile production in China exceeds 27 million units annually (2022), and the spread of EVs (Electric Vehicles) is progressing at the fastest rate in the world. Along with this, the demand for aluminum as a lightweight material is explosive, strengthening the trend of consuming domestically generated scrap within the country. In other words, for Japanese companies, China is changing its nature from a “cheap procurement source” to a “massive consumption market (competitor).”
Aluminum Recycling in Vietnam: Potential as an Emerging Manufacturing Hub
Revision of the Law on Environmental Protection and Introduction of EPR (Extended Producer Responsibility)
In Vietnam, as a countermeasure against environmental pollution accompanying rapid economic growth, the “Law on Environmental Protection (LEP 2020)” was revised in 2020 and enforced from 2022. Worthy of special mention here is the introduction of EPR (Extended Producer Responsibility). This obligates manufacturers and importers to recycle products and packaging materials, pushing for the modernization of the entire recycling industry.
The Vietnamese government has established the construction of a “Circular Economy” as a national strategy, rather than mere waste disposal, and is active in attracting foreign companies possessing recycling technology.
From “China Plus One” to “Strategic Base”
Vietnam has been selected as the leading candidate for “China Plus One” from the perspective of geopolitical risk diversification. Regarding aluminum recycling, however, it is establishing its own unique advantages in the following three points:
- Ease of Scrap Accumulation: With the accumulation of domestic manufacturing industries, the generation of high-quality process scrap is increasing. Additionally, geographically located between Japan, China, and ASEAN, it functions highly as a logistics hub.
- Energy Costs and Labor Force: In addition to relatively cheaper labor costs compared to China and Japan, the introduction of renewable energy is also progressing, creating an environment where cost competitiveness is easily maintained.
- Transfer of Japanese Technology: Japanese companies like Daiwa Aluminum have entered the market, bringing in quality control standards equivalent to Japan (such as JIS standards compliance), thereby dramatically improving the quality of locally produced goods.
Daiwa Aluminum Vietnam’s Initiatives
We, Daiwa Aluminum Vietnam, based in an industrial park near Ho Chi Minh City, deploy advanced sorting, melting, and component adjustment technologies cultivated in Japan.
In addition to scrap procured locally, we utilize imported scrap as needed to manufacture high-grade aluminum alloy ingots (ADC12, ADC6, special composition alloys, etc.). Notably, through our unique recycling scheme, we can propose “Closed-Loop Recycling,” where scrap from a customer’s factory is collected and returned as ingots. This simultaneously realizes the assurance of traceability and the minimization of CO2 emissions.
Comparisons and Choices Procurement Managers Should Note
Summary of the Three-Country Comparison
To formulate a procurement strategy, we summarize the characteristics of the three countries below:
- Japan: Technology and reliability are at the highest level, but energy costs are high and supply capacity is limited. From a BCP (Business Continuity Plan) perspective, 100% domestic dependence is high-risk.
- China: Possesses overwhelming scale, but export capacity is unclear due to prioritizing domestic demand. Susceptible to geopolitical risks and exchange rate fluctuations.
- Vietnam: In a growth stage, with the balance between cost and quality becoming optimized. Japanese suppliers have entered the market, enabling communication in Japanese and detailed quality responses.
Why Source from Vietnam Now?
While cost reduction is obvious, the greatest benefit is the “resilience of the supply chain.” The shipping lead time to Japan is not significantly different from China (about 1-2 weeks by sea), and benefits from tariffs within the ASEAN region (such as ATIGA) can also be enjoyed.
Furthermore, regarding quality, if sourcing from a Japanese factory that has introduced the latest spectrometers and melting furnaces, quality comparable to domestic Japanese products is guaranteed. The era of “cheap and bad” is over; currently, Vietnam is being chosen as a base to procure “high-quality green aluminum at an appropriate price.”
Conclusion
In this article, we compared the aluminum recycling situations in Japan, China, and Vietnam, and explained their respective challenges and possibilities.
- Acceleration of Decarbonization: Aluminum recycling is a trump card for CO2 reduction, making the utilization of recycled ingots a mandatory requirement.
- Limits of Japan: Due to the decline in domestic processing capacity and high costs, the importance of overseas procurement is increasing.
- Rise of Vietnam: Through legal developments and the transfer of Japanese technology, it is maturing as a high-quality and cost-competitive “third supply base.”
For procurement and purchasing managers, we strongly recommend reviewing existing supply chains and strategically incorporating the option of Vietnam. Especially when prioritizing material quality stability and traceability, partnership with a Japanese manufacturer rooted in the local area is the key to success.
Daiwa Aluminum Vietnam provides total solutions ranging from alloy development tailored to customer needs to the construction of scrap return schemes. We can also provide cost estimates and quality samples, so please consider us for your next strategic move.