January/February 1990
What’s in Store for the Year?
Using the various tools available to them and a bit of sixth sense, seven market experts predict how the next 12 months will treat scrap metals and paper stock.
What's in store for the major commodities in 1990? That's the question recently posed to seven intrepid scrap industry executives.
Armed with wit and wisdom, these experts looked at their respective industries through the first 10 months of 1989 to help forecast the future. Most conceded that the second half of 1989 would not end up matching the positives recorded in the January-June 1989 period. Nevertheless, all agreed that the economy is basically sound and were convinced that a "soft landing" is far more probable in 1990 than a crash. Hence, while some predicted further drifting of prices in 1990, none foresaw any disasters awaiting the producers or consumers of metal and paper.
If these forecasts prove correct, the scrap processing and recycling industry could see another solid year as the U.S. economy enters its seventh consecutive year of expansion. Will it happen? As suggested by Arnold I. Plant, Samuel G. Keywell Co., Baltimore, who offered his 1990 view of the nickel and stainless steel markets, "Now drop the crystal ball on the floor, let it break into a million pieces, and let's see what 1990 actually will bring to our industry." But before we do, let's see what may be in store.
--Robert J. Garino, director of commodities at the Institute of Scrap Recycling Industries, Washington, D.C.
Aluminum
By Stanton A. Moss
Stanton A. Moss is president of Stanton A. Moss, Inc., Bryn Mawr, Pennsylvania, and is the Institute of Scrap Recycling Industries's Nonferrous Division first vice chairman and Nonferrous Committee chairman.
Nineteen eighty-nine will be remembered as the year when aluminum came off its lofty perch. By mid-July 1989, its London Metal Exchange (LME) cash values had fallen to 75 cents per pound, $1.00 per pound less than a year earlier. The downtrend was caused by skidding auto sales and slumping new-housing starts, ominous signs for the aluminum industry.
In the past two years, demand for aluminum has outpaced supply, causing the bull markets of 1988 and 1989. There will be only a moderate increase in the primary supply during 1990 as most of the new primary aluminum projects aren't scheduled to come on-stream until 1992, if at all. Lack of financing and ever-changing government leadership could scrap some of the projects--in Canada, Venezuela, Brazil, France, and other locales--in their entirety. When they do come on-line, cutbacks in the United States and Europe should offset the increased production.
Demand for aluminum should increase 3 percent to 4 percent worldwide in 1990. Much of that growth will be outside North America, with the European can market showing strong increases. Overall, supply and demand should be close to balanced, bit ahead in 1990.
What other factors could affect the price of aluminum in 1990? The world economy must be scrutinized carefully. Any softening of European or Japanese economies on top of our "soft landing" could result in oversupply and weaker price levels. In addition, a change in the dollar-yen ratio could result in some price fluctuations.
Taking into consideration all of the above, the prime aluminum market in 1990 should trade between 68 and 78 cents per pound. The weaker market should come into play during the beginning of the year, but we should see some improvements during the latter part of the year. The price for various grades of aluminum scrap should follow suit.
Copper
By Ron Peek
Ron Peek is manager of metal services for Southwire Co., Carrollton, Georgia.
We have been to copper outer space, and it was wonderful. On our trip we saw record prices, record volumes, record profits, and record Commodity Exchange, Inc. (COMEX), swings in single days. We made new friends, we saw labor interruptions and facility interruptions, we cleared debt, and we incurred debt.
In early 1990, we should return to earth as copper consumption and copper supply begin to swing in the other direction. This swing likely will continue through 1990. Prices should fall, margins narrow, and volumes decrease. Construction and automobile sales probably will decline in 1990 as should the general economy.
COMEX should begin 1990 with copper prices in the $1.00-per-pound range, falling to 65 to 75 cents per pound by year's end. This year will be the year we adjust our thinking and prepare for the next trip to outer space. Changes have occurred in the business mind: inventories, customer service, pricing, and expansion of facilities are viewed differently today than in the past. The environment will be foremost in the minds of business, government, and the taxpayer. Now is the time to get ready.
Iron and Steel
By I. Michael Coslov
I. Michael Coslov is chairman and CEO of Tube City, Inc., Bala Cynwyd, Pennsylvania, and is chairman of the Institute of Scrap Recycling Industries's Ferrous Committee.
Projecting the iron and steel market for 1990 is an impossible task, especially considering where we have been. However, it is possible to discuss some probabilities.
Because of the changed constitution of steel melting facilities, this scrap market now mirrors the economy probably closer than ever before. Therefore, one might conclude that the scrap steel industry would follow the ins and outs of what moves the overall economy.
Although our domestic economy seems to be a little soft, the European and Japanese economies are especially strong. In addition, the advent of EC '92 should mean a stronger European economy and more pressure for goods and services from the United States. The strength of foreign economies should keep the U.S. economy out of any serious recessionary period.
Assuming most of this takes place, the steel business should be relatively stable and, therefore, the scrap market should not suffer from a tremendous decrease in demand. The first or second quarter of 1990 should see a stronger market for scrap iron and steel than appeared in the second half of 1989, with the rest of 1990 following a pattern similar to 1989.
It seems the biggest problem facing our domestic scrap steel market is the availability of obsolete automobiles. Today, it appears, there is more available shredder capacity than raw material to use it. It is vital that the industry not make mammoth investments in plants and equipment like those of 1974, which contributed to the industry's economic problems of later years. Too often, the spreads that appear in the year of plenty get forecast forever and we burden ourselves with overcapacity.
We should look forward to a viable steel industry and a good scrap business in 1990. There are still likely to be swings, but they shouldn't be as violent as in the past. All in all, the 1990s will probably follow a pattern closer to the late 1980s than the mid-1980s.
Lead
By Lee D. Raymond
Lee D. Raymond is director of raw materials purchasing and sales for Roth Bros. Smelting Corp., East Syracuse, New York.
During 1989, the lead market appeared to run counter to all other base metals. Acting like a former heavyweight prizefighter, lead seemingly survived early year primary producer price declines, posting six consecutive increases to the 42- to 44-cent-per-pound levels of late 1989. However, primary producer list prices can no longer be counted on to gauge the health of the lead market, as virtually all primary lead sellers embraced a policy of quoting over the spot LME lead price.
For scrap processors, 1989 may have been frustrating in terms of prices and the ability to move available scrap. Secondary smelter scrap price increases did not match primary increases. As the year wore on, more scrap became available than most secondaries required. Automotive program cutbacks during the final quarter decreased the amount of lead required by secondary smelters for the manufacture of solders for brass-copper radiators. On top of that, more automobile models with aluminum radiators carne on the market in 1989. Although new secondary facilities were opened in Indiana and Missouri, scrap processors reported lengthy delays in pickups of their scrap batteries. Export market interest in lead was sporadic throughout the year, with year-to-date totals far below those of 1988.
Since lead-acid battery production accounts for nearly 80 percent of all U.S. lead usage, the fortunes of the automobile industry and Mother Nature will largely dictate how well prices of spent batteries and lead or lead-based scrap do in 1990. As our economy seemingly has entered a "soft-landing" phase, we should expect lead prices to drift lower during 1990 with posted producer prices between 35 and 40 cents per pound.
Nickel/Stainless Steel
By Arnold I. Plant
Arnold I. Plant is senior vice president of Samuel G. Keywell Co.'s plant division, Baltimore, and is chairman of the Institute of Scrap Recycling Industries's Stainless & Alloys Committee.
Last year was an excellent one for nickel and stainless steel. While during the last few months of 1989 business slowed up quite a bit, the year as a whole was good for the scrap industry. What does 1990 hold in store? One must be crazy to predict the next year, so here goes.
Overall, the year will be fair to good to the nickel/stainless market, but not like the past two-and-one-half years. Markets and business need a breather, and the first half should provide a slowdown. Nickel will be in an oversupply position, but not by a great deal. However, if there are strikes or major equipment breakdowns, the whole picture could change, and change fast.
Chromium will definitely be plentiful and the price should be lower than it's been in the past two or three years. There is too much new production of chrome and ferrochrome coming on-stream, and it will be sold if at all possible.
Stainless steel scrap will also be saleable, although prices will be more in line with those of the mid-1980s than 1988 and 1989. Also, the stainless scrap recycling position will be regenerated-a fact that has not had a chance to rebuild since before 1987.
In conclusion, scrap can and will be bought and sold and business will be done. However, values will not be what we have seen in the recent past,
Now drop the crystal ball on the floor, let it break into a million pieces, and let's see what 1990 actually will bring to our industry.
Paper Stock
By Richard M. Foohey
Richard M. Foohey is vice president and general manager of Great Eastern Packing & Paper Stock Corp., East Weymouth, Massachusetts, and is chairman of the Institute of Scrap Recycling Industries's Paper Stock/Nonmetallic Division.
The pulp and paper industry has enjoyed four years of rising prices and increased profits. Pulp prices, in particular, advanced virtually uninterrupted for 13 quarters. The waste paper industry saw pulp substitute grades double and triple m value. However, at the beginning of the third quarter of 1989, the market peaked and the inevitable downturn became a reality in September. Domestic demand for white pulp substitutes dropped sharply, though the export market somewhat stabilized the situation. The crystal ball is still very foggy on pricing for the future.
On the positive side, demand for deinking grades has been very strong. The most sought-after items are colored ledger, coated book, and computer printout paper. This scenario should carry through the year and well into 1990.
The one bright spot in the low-grade spectrum has been corrugated. New mill capacity is coming on stream and several linerboard mills are now preparing to increase their usage of old corrugated.
Postconsumer news has been in heavy oversupply and appears to be a problem that will not go away before the mid-1990s. The federal and state governments are putting heavy pressure on newspaper publishers to use newsprint with a recycled old news content. Publishers, in turn, are pressuring newsprint manufacturers, who eventually will be forced to retrofit their mills to handle 40- to 50-percent old news. The $64.00 question is what to do with all the mandatory source-separated news until the government-publisher-manufacturer triumvirate creates the demand.
Mixed paper also is still a giveaway item, and no improvement is in sight. Boxboard has fallen sharply in demand and price as the result of one major Northeastern user dropping out of the market.
Thus, it appears that negative pricing of several bulk grades is here to stay. With baling costs soaring and mill price levels for low grades at rock bottom, this may be the only solution available to allow dealers and packers to remain solvent. The nature of the paper stock business has changed dramatically with the advent of mandatory source-separation laws and this will present serious challenges to be dealt with through the 1990s.
Zinc
By Russ Robinson
Russ Robinson is president of U.S. Zinc, Houston.
In 1989, zinc enjoyed its best-sustained performance in history. The producer price reached a high in March of 95 cents per pound. After this market peak, many expected prices to fall to 55 cents per pound, but the market sustained itself between 75 and 85 cents per pound for the entire year. Zinc was never in oversupply during the year and consumption was particularly strong at steel mills where galvanizing continued to increase.
Many metal research analysts believe zinc will see significantly lower prices in 1990, however, it should actually experience a fairly healthy market in 1990, with prices between 65 and 85 cents per pound. Although zinc usage may decline with automobile demand, it appears that coating steel with zinc will continue to increase. In fact, at least six new electrogalvanizing or continuous galvanizing lines have been announced. Substitution of zinc probably will not be as great as expected and should be offset by increased galvanizing.
No new zinc smelting capacity is scheduled to come on-line in 1990 and the three announced expansions, if approved, will not be a factor until 1991. Production problems could well get worse in South America, and zinc usage should increase in certain less developed countries. Barring a major recession, zinc should continue to be in balance in the United States in 1990.
Therefore, 1990 prices should hold fairly firm with no tremendous fluctuations in price. The advent of only an LME special high grade contract should further support the zinc market. In addition, zinc's fortune isn't tied to other metals, so its supply and demand curve should determine its price in 1990.•
Using the various tools available to them and a bit of sixth sense, seven market experts predict how the next 12 months will treat scrap metals and paper stock.