TOKYO -- Daiki Aluminium Industry this year will spend 1.3 billion yen ($11.99 million) to increase its capacity to sort aluminum scrap and in the process produce zinc and copper.
The global scrap market is currently experiencing a glut due to moves by China to limit imports of the stuff. Daiki's investment is intended to capitalize on the resulting low prices for scrap and to increase earnings through the sale of by-products.
"We will capitalize on political turbulence as a business opportunity," Daiki President Takaaki Yamamoto said.
Scrap began piling up in Japan last year after China restricted imports of the material.
Daiki, a major producer of secondary alloy ingots from recycled aluminum, has been expanding overseas in recent years as the domestic market for the ingots, mostly used in auto-making, has hit a ceiling.
The Osaka-based company expects the investment to help drive stable earnings growth.
Daiki will relocate the principal plant of Daiki Material, a subsidiary that sorts nonferrous scrap, in Kameyama, Mie Prefecture, to its own compound in the same city. The relocated plant will be expanded, and a new sorting machine will be introduced. As a result, Daiki expects to be able to process 2,500 tons to 3,000 tons of aluminum scrap per month, up 2.5 times from the current volume.
Scrapped aluminum comes from automobiles and home appliances after rubber and plastics are removed. These pieces mainly consist of aluminum but include copper, brass and zinc.
Daiki extracts the aluminum from this scrap in a blenderlike machine that bases its alchemy on the specific gravities of different metals.
China said its import restrictions on nonferrous metal scrap are meant to prevent environmental and health hazards; its scrap dealers now must receive government permission before they can import the stuff.
The global availability of aluminum scrap is also up because U.S. exports to China have almost ceased since 2018, when Beijing increased tariffs on imports of U.S.-made aluminum.
China's scrap metal imports totaled 1.56 million tons in fiscal 2018, down about 30% from the previous year.
In Japan, much of the aluminum scrap that used to be exported to China is piling up.
Expecting that aluminum scrap procurement in Japan will remain stable in light of China's import curbs, Daiki decided to make the investment in the reprocessing plant with the intention of reducing the material cost for production of secondary alloy.
In another move, Daiki plans to build a plant in India later this year to process aluminum scrap, locally available at low cost, into alloy that will be supplied to the country's growing auto industry.
Daiki logged 200 billion yen in sales in fiscal 2018, including 90 billion yen in overseas sales. The respective numbers are up 1.5 and 3.5 times from a decade earlier. The company has expanded foreign sales by following Japanese automakers and launching operations in countries like Thailand and Indonesia.
In Japan, the production of motor vehicles and other transport equipment, which use 80% of secondary alloy ingots, has been slowing. Daiki's expansion of its sorting and extraction operations, then, is a diversification tactic.