INDIANAPOLIS (AP) _ Steel industry veteran Tim Moran believes he can loosen aluminum's grip on the beverage can industry with a less expensive steel container that has won enthusiastic approval from Pepsi and Coke.

But if Moran and the steel industry are to penetrate aluminum's 96 percent share of the market, the key may not necessarily be in pricing their product but recycling it.

''If cost were the only factor, the potential switch from aluminum to steel would be greater,'' said Harold Sohn, an official at Ball Corp., a leading can producer based in Muncie, Ind.

The aluminum can, he said, ''really is an environmentally sound package, and brewers and soft drink manufacturers want to be in that kind of package.''

The steel industry recognizes the need to recycle, and has formed the Steel Can Recycling Institute. Moran also recognizes that need, and created a recycling division within his 2-year-old company, Bev-Pak Inc.

The 43-year-old Pittsburgh native left as general manager of the tin plate division of USX Corp. in 1987 to form Bev-Pak, which began production a year ago at Monticello in northwest Indiana, one of the world's largest steel- producing regions.

Moran had seen the two-piece aluminum can slowly replace the three-piece steel product while the aluminum industry built a recycling infrastructure so efficient that today more than half its cans come back as scrap. Aluminum, which in 1964 accounted for only 2 percent of the beverage can market, had half of it by 1977 and reached 92 percent in 1983.

In 1988, the last year for which the Can Manufacturers Institute has complete figures, aluminum accounted for 77.9 billion of the 81.2 billion beverage cans produced in this country.

The price of aluminum cans has risen with its market share, and the cost advantage of steel had reached as much as $8 per 1,000 cans when Bev-Pak was starting out.

Still, Moran sensed skepticism.

''Bev-Pak comes on the scene, builds a $100 million steel can plant, and the industry can't believe it,'' Moran said.

His 200-employee plant can produce 1,600 cans per minute, or 2 billion cans per year. That represents half the total steel beverage can output in this country.

Moran's customer base stretches around the key industrial cities of the Midwest. Soft-drink giants PepsiCo Inc. and Coca-Cola Co., leading users of cans, supported him from the start - he considers them the ''core advocates that were the base of the business'' - and beer brewers are starting to show interest. Bev-Pak recently added a line to produce cans for Miller Brewing Co.

''There is a place in the market for Bev-Pak. We've got major, billion- dollar companies watching us,'' Moran said.

Moran estimates 20 percent of his cans are recycled, some collected through a Bev-Pak division called Recycle Indiana Resources. It draws upon a network of 400 recyclers in Indiana, Ohio and northern Illinois, operates 11 recycling trailers around Indianapolis and runs motor routes in other Indiana and Ohio cities.

The two-piece steel can, with its aluminum top, is nearly identical to the all-aluminum can but slightly heavier.

''They're both so light today that it's almost impossible for the consumer to tell the difference,'' said Sal Porrazzo, director of environmental affairs for PepsiCo Inc.

The competition between the two metals is fundamental to keeping prices down, Porrazzo said. Pepsi is using steel for 10 percent to 12 percent of its can packaging, he said.

The steel can is produced at a lower cost because steel is cheaper than aluminum, but that factor becomes a negative in recycling. Where aluminum cans can fetch about 50 cents a pound, steel is closer to 10 cents or less.

''We certainly want to be in environmentally sound packaging,'' Porrazzo said. ''The issue that comes up is, are steel cans recyclable?

''When you get to consumer recycling aspects, there's a value difference that singles steel out as not being recyclable because it is not as valuable,'' Porazzo said. ''You shouldn't penalize a package just because its recycled value is not as high.''

Sohn, director of industrial affairs for Ball's Denver-based Package Products Groups, said aluminum's market domination was based on recyclability.

Ball in 1973 opened a beverage can plant in Findlay, Ohio, with two steel lines, but converted one to aluminum by the mid-1980s. When it opened a new plant in Conroe, Texas, in 1987, it had one steel line and one aluminum. Its other five beverage can plants produce only aluminum cans, Sohn said.

''We make what the customer wants. We don't force something on them. Clearly, there's been a preference over the years for the aluminum, because of its recyclability and recycling weight,'' Sohn said.

Customer interest in steel is growing, and the chances of steel regaining a greater share of the market are strong if aluminum prices remain high and steel gets its recycling program off the ground, Sohn said.

The nation's top steel producers established the Steel Can Recycling Institute in 1988. Steel is the most recycled material in the world, and institute figures show twice as much steel was recycled in this country from 1979-88 than all other recycled materials combined.

However, consumers weren't getting the message.

''It is fair to say the industry has not done a very good job of telling people they had a recycling infrastructure in place,'' said Elizabeth Olenbush, the institute's director of marketing.

End adv for Tuesday Feb. 20