1988 Commodity Wrap-up: Another Peak Year for Paper Stock and Metals

Riding the tide of another economic high in the U.S., paper stock and metals had a successful 1988. How successful? Read on.

By Robert J. Garino

Robert J. Garino is director of commodities for the Institute of Scrap Recycling industries, Washington, D.C.

Another year of U.S. economic expansion--number six, in fact--and basic metal commodities continue to rack up many all-time records, in both volumes shipped and, especially, price. Paper stock also participated in this longest-ever peacetime business expansion. Can this pace continue?

Most economists see slower economic growth ahead in 1989, citing as examples the fact that net exports and capital spending stalled in the second half of 1988. Inflation concerns also mounted, but this worry has yet to spill over significantly into the precious metal sector. In fact, gold, silver, platinum, and palladium values averaged lower in 1988 than in 1987.

How well did the base metal and paper industries do in 1988? A brief summary of last year follows.

Aluminum

Total aluminum industry shipments (including exports) rose nearly 4 percent in 1988, posting a new domestic record of approximately 8.4 million short tons. Demand was led by the strong beverage container and transportation markets. At the same time, the building and construction markets posted year-on-year declines.

To meet demand, U.S. primary producers poured new metal at or near full capacity last year--squeezing out 3.9 million metric tons (mmt), compared with 3.4 mmt in 1987--an increase of 17.9 percent. Secondary smelters also participated positively in 1988, with shipments of specification alloy posting a 10-year high 3.4 percent greater than 1987.

Strong demand for primary metal and scrap and relatively low stocks of metal on hand led to significantly higher ingot prices. Meanwhile, mills held the line on key sheet items. The Metals Week U.S. market price averaged $1.00 per pound last year for ingot, compared with $0.72 in 1987, an increase of 52.3 percent.

Copper

The domestic copper industry posted its third consecutive year of increased refined consumption in 1988 (up 3.7 percent over 1987), while refined production surged more than 11 percent over 1987. Refined stocks of copper trended downward as copper scrap consumption rose nearly 11 percent.

Strong U.S. demand, apparent in sheet and strip applications, was largely attributed to the positive automotive sector, while a strong business investment climate was held responsible for underpinning the building wire, plumbing tube, and brass rod markets. (Building wire, plumbing, and heating applications made up approximately 35 percent of the total copper and copper alloy products shipped last year.)

Responding to domestic and international fundamentals, as well as to speculative elements, copper values rose substantially in 1988. Spot COMEX averaged $1.15 per pound in 1988, compared with $0.78 in 1987. No. 2 copper scrap averaged $0.88 per pound in 1988 versus $0.64 in 1987. LME values also were higher, averaging 36 percent more for cash, 31 percent more for three months.

Iron and Steel

The steel industry enjoyed a very solid year as reported shipments of mill products totaled 84.0 million net tons (mnt), 9.5 percent greater than the 76.7 mnt shipped in 1987. Shipments last year were the highest since 1981 (88.5 mnt). Automotive shipments posted a noteworthy 8.8 percent increase over 1987.

Overall raw steel production exceeded 99.3 mnt, recording an increase of nearly 11.5 percent over the previous year. Processors and consumers of steel scrap participated fully in steel's recovery, with electric furnaces capturing approximately 36.5 percent (36.2 mnt) of the total steel produced.

Ferrous scrap prices were significantly higher in 1988, with the AMM composite price for No. 1 heavy melt recording its highest-ever yearly average. The average was $108.98 per gross ton and eclipsed the previous high of $107.83 per gross ton set in 1974. Strong domestic markets contributed to lower exports of scrap. In 1988, 9.5 mnt of scrap left the U.S., compared with 10.0 mnt in 1987.

Lead

Available statistics on the domestic lead industry reveal interesting, although contradictory, statements about the marketplace. Total consumption of lead for all products, as reported by the U.S. Bureau of Mines, was virtually unchanged from the 1.2 mmt posted in 1987. At the same time, the market for storage batteries, which accounts for three-fourths of total consumptions, recorded record shipments. Replacement battery shipments hit 63.4 million units-up 6 percent over the 59.9 million units shipped in 1987.

Primary lead production was up 4.9 percent in 1988, reaching 432,202 short tons (American Bureau of Metal Statistics numbers), while the Bureau of Mines reported production data from the secondary sector pointing to a decline of approximately 1.8 percent--despite an estimated increase in old scrap recovered. Secondary production declines were attributed to smelter problems, not scrap availability.

Among the nonferrous metals, lead prices exhibited the least volatility over the year, even though they trended slightly higher through 1987. North American list prices averaged 37 cents per pound last year compared with 36 cents per pound in 1987. On the LME, cash quotations exhibited a similar pattern, with the average being only 1.4 percent higher for 1988 compared with 1987.

Nickel/Stainless Steel

After an approximately 20-percent increase in stainless steel shipments in 1987, 1988 was another extremely positive year for this commodity: shipments were nearly 12 percent above 1987, an all-time record. U.S. market strength also carried over into the world nickel market.

Worldwide consumption of nickel is estimated to have increased 5 percent, virtually all of which is attributed to stainless demand. Strong demand for stainless coupled with real and imagined nickel supply disruptions through the first half of 1988 propelled nickel values and the demand for nickel-containing scrap. As 1988 ended, the nickel market showed renewed vigor as consumer buying prices for 18-8 stainless steel scrap.

Metals Week dealer cathode averaged $6.09 per pound in 1988, compared with $2.28 per pound in 1987--a 167-percent increase.

Paper Stock

Production of paper and paperboard in 1988 hit another new record of 76.7 million short tons, marking the third consecutive year of record output. Paper registered a 4.1-percent increase over 1987 and paperboard was 2.1 percent higher. By virtually every measure, the paper and paperboard industries enjoyed another banner year. Most markets increased as mills announced near-term capacity increases.

Demand and consumption of paper stock generally kept pace with domestic markets while exports surged--up about 31 percent over 1987. On the downside, however, several bulk grades of paper stock (old newspapers and old corrugated containers, for example) were affected negatively by mounting supplies and failing prices. Packers attributed the weakness to the effects of mandatory source separation programs now in place in several parts of the country.

Zinc

Tracing an uptick in demand that began in the second half of 1987, consumption of slab zinc continued to exceed most industry expectations in 1988. Strong automotive and construction markets propelled the galvanizing sector, which accounted for approximately 50 percent of the slab zinc consumed last year. Shipments of electrogalvanized sheet and strip were up 49 percent over 1987 and hot-dip sheet and strip shipments recorded a 6-percent increase over 1987. Consumption of zinc in die-cast alloys was up approximately 10 percent compared with 1987.

The U.S. remains heavily dependent on zinc metal imports to meet this demand. In 1988, more than 80 percent of domestic slab consumed was from offshore sources. Based on Institute of Scrap Recycling Industries estimates, scrap consumption was up but market share remained unchanged.

As world supply-demand fundamentals firmed throughout 1988--exacerbated by mine and smelter production problems--U.S. and world zinc values rose to levels not seen since 1974. In sterling terms, record levels were hit as 1988 drew to a close. In the U.S., the Metals Week (high grade) quotation averaged 60 cents per pound in 1988, compared with 42 cents per pound in 1987. •

Copper

Iron and Steel

Nickel/Stainless Steel

Zinc