May/June 1994
Hard Times Persist Amidst Recovery
Despite improved demand for most scrap-related commodities last year, profits remained elusive for many recyclers and primary producers, particularly in the nonferrous and nonmetallic markets.
By Robert J. Garino
Robert J. Garino is director of commodities for the Institute of Scrap Recycling Industries (Washington, D.C.).
Contrary to what many scrap recyclers and consumers might think, the Unites States is in an economic recovery and technically has been since mid-1991. As 1993 ended, in fact, the stock market--a leading indicator of economic strength--marked its 37th month in a bull market phase, and the Dow Jones industrial average closed just under its all-time high, contributing to an overall increase of 13.7 percent for the year.
Further, the real gross domestic product grew 2.8 percent last year, following the 2.6-percent increase in 1992. And corporate America, as reflected in the Fortune 500, reported “dazzling” profits compared with 1992, which had marked the first time the 500 had ever lost money as a group. These profits weren’t necessarily credited to extraordinary consumer purchasing, however, though certain segments such as automobile sales racked up impressive gains. Rather, solid overall demand for goods and services, corporate downsizing, lower-long-term interest rates, and an overvalued Japanese yen all helped to improve the bottom line of American companies, according to Fortune.
Still, most commodities--scrap-related and not--failed to fully participate in the U.S. economic recovery in 1993, making it another frustrating year for many firms in the scrap recycling business. The apparent problem: Positive factors in the United States alone couldn’t counter the negative effects of recessions in Europe and Japan on internationally traded commodities. Plus, in the case of nonferrous metals, there was the additional issue of seemingly inexhaustible supplies of raw materials flowing out of the former Soviet Union . This emphasizes the fact that raw materials, as economic building blocks, are dependent on world economic growth.
Not all the news was negative last year for scrap-related commodities, however. Overall consumption of everything from aluminum to zinc was greater than in 1992, continuing the rise seen the previous year. And, of course, steel enjoyed phenomenal success in 1993, as domestic steelmakers poured more metal, profitably, than in recent memory and demand for scrap--and scrap prices--soared.
Here’s a closer look at how each of the major scrap-related commodities fared last year.
Aluminum
By virtually all industry measures, the 1993 world aluminum market again suffered from too much supply chasing too little demand. This basic theme has dogged aluminum since 1991 when stocks of refined metal first began climbing, far outstripping the ability of the major industrialized nations to consume primary metal.
As evidence of this oversupply trend, the London Metal Exchange (LME) (London) added approximately 1 million tons to its warehouses in 1993, ending the year at 2.7 million tons, up 58 percent over year-end 1992. Due to this flood of metal--mostly from the former Soviet Union--average annual cash prices on the LME fell 9 percent compared with 1992.
On a more-positive note, Western primary shipments were, at 15.1 million metric tons (mt), essentially unchanged from 1992, and the U.S. market fared much better despite apparent weakness in the can stock market. At the same time, mill product shipments increased 3.6 percent, though domestic shipments-encompassing mill products, ingot, and exports--recorded a 1-percent decline compared with 1992.
In the aluminum scrap market, consumption rose 2.8 percent over 1992 but couldn’t keep pace with the 9.2-percent growth of total metal consumption, which includes the effects of primary metal imports, according to data from ReMA and the U.S. Bureau of Mines (Washington, D.C.). Consequently, scrap’s share of the market dropped from 43 percent in 1992 to 40 percent in 1993, a rate comparable to 1991. Exports of aluminum scrap also slipped--to 233,000 tons, down 28.3 percent from 1992.
Copper
Despite lingering recessions in Europe and Japan, copper usage held remarkably firm in the last two years, with Western World consumption growing modestly in 1993--less than one-half of 1 percent--to approximately 9.2 million mt. Still, higher world production of refined copper, coupled with an increase in Eastern Bloc exports, kept the market in surplus and, hence, prices lower than in 1992.
The U.S. copper market can take much of the credit for sustaining higher world usage, as apparent domestic consumption increased 6 percent in 1993, according to ReMA data. In particular, this demand can be traced to increases in domestic housing starts (up 7.1 percent) and automotive production (up 12 percent). As an example of the effects of these gains, copper rod shipments bested 1992 by 6 percent, representing their highest level since 1979. Virtually all other segments of the domestic copper industry also performed admirably last year.
Similar to aluminum, lead, and nickel, however, copper suffered in 1993 from readily available supplies of refined metal--refined copper imports, for example, were up 15 percent--which diminished scrap’s appeal to buyers and sellers, and dragged down copper tags. Cash prices on the Commodity Exchange Inc. (New York City), in fact, averaged 85.3 cents a pound in 1993, 17-percent lower than the $1.03 average for 1992.
The ample supply of refined copper and a perceived tightness in scrap limited scrap recovery growth to 2 percent and, as a result, scrap share of the market fell from 42.2 percent in 1992 to 40.5 percent last year, according to ReMA calculations.
The export market, on the other hand, was a bright spot for copper scrap, rising 6 percent to 288,000 tons and thus reversing three consecutive years of declines.
Iron & Steel
No question about it, 1993 was a boom year for steelmakers and ferrous scrap processors, especially from midyear onward. Steel mill shipments from domestic producers, for instance, were at their highest in 13 years, hitting 88.4 million tons, up 7.5 percent over the 82.2 million tons shipped in 1992, reports the American Iron and Steel Institute (AISI) (Washington, D.C.). According to AISI, 1993 saw year-on-year shipment increases in nearly every market classification: automotive, up 14.1 percent; construction and contractors products, up 10.6 percent; and machinery, industrial equipment, and tools, up 10 percent.
In addition, domestic raw steel production reached 96.1 million tons, 3.4 percent greater than 1992’s 92.9 million tons, AISI says. In comparison, Western Europe managed only a 0.9-percent increase over 1992, while Japan’s crude steel production rose 1.5 percent.
To help meet U.S. output, ferrous scrap demand soared. Domestic consumption of purchased iron and steel scrap exceeded 53 million tons, an increase of more than 12.5 percent over 1992, and U.S. steel mill scrap inventories ended the year at their lowest level on record. Meanwhile, scrap’s share of the market gained 3 percentage points--more than any nonferrous metal.
Thanks to increased mill capacity use and steady export orders--which jumped 7 percent compared with 1992--steel scrap prices surged, reaching levels last seen in 1974. On average for the year, the No. 1 heavy-melting steel composite price was 30-percent above comparable 1992 numbers.
Lead
Reversing three years of falling lead usage, 1993 Western lead consumption increased 0.6 percent above 1992 levels, according to International Lead and Zinc Study Group (London) figures. The U.S. lead market was the strongest of the industrialized economies, with apparent domestic lead consumption reaching more than 1.5 million tons last year--7-percent greater than 1992--thanks to a record level of battery shipments to automotive and industrial end-use markets. This marked lead’s best showing since 1979, when more than 1.6 million tons was consumed.
On the supply side, meanwhile, total Western World refined lead output declined 1 percent and, more significantly, world lead mine output decreased for the second year in a row, falling 11 percent to reach its lowest level in 30 years. This world mine decline was traced to the generally depressed markets for both lead and zinc in the past two years, which have forced numerous co- and byproduct mines to reduce or suspend production. Despite these combined positive, the secondary lead industry couldn’t keep pace, and nonexistent margins, capacity reductions, and available supplies of refined metal caused scrap’s market share to shrink.
Moreover, the strong U.S. market couldn’t counter rising world stocks of refined metal, as LME warehouses gained 34 percent over 1992 levels and, not surprisingly, the average annual LME lead price fell 26 percent. To make matters worse, scrap exports dropped for the second consecutive year, hitting 57,000 tons, which matched lows last seen in 1989.
Nickel & Stainless
The world nickel market was again overshadowed in 1993 by high levels of Russian-origin nickel sales and little action by Western World producers to stem their production of refined metal. This brought about another significant increase in visible LME stocks, with inventories ending the year at 124,100 mt, a jump of 74 percent over year-end 1992.
Prices fell sharply as the world market felt the weight of these excessive stocks and weak economic growth outside of the United States. LME cash prices ranged from a high of $2.86 a pound set the first week of January 1993 to a seven-year low of $1.82 in late September, with the annual average hitting $2.40 compared with $3.17 in 1992.
In contrast to the woes of world nickel producers, domestic stainless steel mills racked up impressive gains last year, benefiting from higher shipments (up 1.3 percent over 1992) and lower raw material costs for 18-8 stainless scrap. Interestingly, other world stainless steel mills also showed unexpected strength, and total world stainless production was estimated to have increased by 4 percent.
There was also good news in stainless steel scrap exports, which increased 7 percent to end three consecutive years of lower foreign demand.
Despite these heartening figures, domestic stainless steel scrap processors didn’t prosper last year. Low nickel prices, coupled with ample supplies of scrap substitutes, caused 4.6 percent less scrap to be used last year compared with 1992. As a result, scrap’s market share slipped from 47 percent in 1992 to 45 percent last year.
Paper
U.S. primary paper and paperboard mills enjoyed higher sales in 1993, thanks mostly to improved demand for printing and writing papers. Consequently, total domestic production of paper and paperboard also moved up last year to about 85.9 million tons, representing a 1.7-percent increase over 1992.
The scrap paper market posted gains as well: Domestic consumption increased 10 percent over 1992, reaching around 29.2 million tons, and scrap’s share of the market rose to 34 percent from the 31 percent recorded the previous year. Moreover, 1993 marked a significant “first” in that it was the first year that more paper was recovered for recycling in the United States than was disposed, according to the American Forest & Paper Association (Washington, D.C.).
Still, 1993 was another disappointing year for U.S. scrap paper recyclers, who were confronted with relatively depressed demand for furnish and regional oversupply of postconsumer grades. Packers also point out that many of the highest grades of paper stock--pulp substitutes--continued to be negatively affected by a world oversupply of virgin wood pulp. The brown grades didn’t fare any better, as mill buying prices for many commercial grades of scrap paper softened as the year progressed.
Paper recyclers also found the export market languishing for the second year running. In fact, faced with diminished demand from recession-plagued Europe , as well as increased collections abroad, U.S. scrap paper exports declined 8.7 percent last year.
Plastics
Total domestic virgin resin sales increased 5 percent last year, reaching an impressive 35.6 million tons shipped, with virgin resin sales to the packaging market rising at the same rate to hit 8.7 million tons, according to Modern Plastics.
For U.S. users of bottle-grade polyethylene terephthalate (PET), whether virgin resin or reclaimed scrap, 1993 proved to be exceptionally strong, and resin makers seemed to be hard-pressed to keep up with the demand. Recycled PET’s 1993 success, however, was reportedly held back by a lack of feedstock, which limited growth in its market share.
While the overall plastic bottle recycling rate remained unchanged at 19 percent in 1993, some postconsumer grades registered recycling increases. One of these, of course, was PET, which improved its recycling rate to 29 percent from 1992’s 28 percent, despite some supply bottlenecks in the recycling chain. According to ReMA estimates, PET collection hit 225,000 tons last year, representing slightly more than half of the 440,500 tons of postconsumer plastic bottles recovered. Other postconsumer-grade resins that also recorded year-on-year increases include film grades such as low-density polyethylene, polyvinyl chloride, and polystyrene foam packaging.
Despite these positives, continued low virgin resin prices and correspondingly slim margins hampered plastic recycling in 1993, forcing industry retrenchment and consolidation.
Zinc
Although data from the International Lead and Zinc Study Group show that the Western zinc industry posted a 1.8-percent consumption increase in 1993, it was not nearly enough to offset the growing world surplus of slab zinc. Total world stock of zinc held by producers, merchants, consumers, and the LME reached nearly 1.5 million mt--an increase of about 471,000 mt. Most of this increase found its way into LME warehouses, where zinc holdings increased 86 percent during the year--more than any other LME-traded metal. By the end of 1993, LME stocks alone stood at 906,700 mt.
Not surprisingly, these highly visible stock increases, along with less zinc consumed in both Europe and Japan, weakened prices on the LME. Cash zinc ranged from a January high of 50.3 cents a pound to a late-September low of 39 cents, while zinc’s 1993 average was 43.6 cents--22 percent lower than in 1992.
Scrap zinc exports were also a detracting influence, dropping 41 percent last year to around 37,000 ton.
Even so, the U.S. zinc market performed extremely well, posting a 9-percent consumption increase last year on the heels of its 11-percent gain in 1992. According to conservative ReMA estimates, domestic scrap consumption more than kept pace with total apparent zinc consumption, and scrap zinc increased its market share to 23 percent.
Aluminum
Domestic Scrap Consumption* (tons)
1989: 2,513,000
1990: 2,965,000
1991: 2,831,000
1992: 3,431,000
1993: 3,527,000
Apparent Domestic Consumption (tons)
1989: 6,872,000
1990: 7,283,000
1991: 7,123,000
1992: 8,077,000
1993: 8,818,000
Scrap Market Share
1989: 37%
1990: 41%
1991: 40%
1992: 43%
1993: 40%
U.S. Scrap Exports (tons)
1989: 634,000
1990: 592,000
1991: 508,000
1992: 325,000
1993: 233,000
*Includes U.S. Bureau of Mines estimates for unreported purchased scrap.
All figures are rounded. 1993 data are preliminary.
Copper
Domestic Scrap Consumption (tons)
1989: 1,442,000
1990: 1,443,000
1991: 1,337,000
1992: 1,404,000
1993: 1,430,000
Apparent Domestic Consumption (tons)
1989: 3,247,000
1990: 3,244,000
1991: 3,068,000
1992: 3,334,000
1993: 3,535,000
Scrap Market Share
1989: 44%
1990: 45%
1991: 44%
1992: 42%
1993: 41%
U.S. Scrap Exports (tons)
1989: 405,000
1990: 358,000
1991: 338,000
1992: 271,000
1993: 288,000
All figures are rounded. 1993 data are preliminary.
Iron & Steel
Domestic Scrap Consumption (tons)
1989: 50,247,000
1990: 51,475,000
1991: 46,345,000
1992: 47,345,000
1993: 53,288,000
Apparent Domestic Consumption (tons)
1989: 108,385,000
1990: 108,588,000
1991: 96,513,000
1992: 102,029,000
1993: 107,870,000
Scrap Market Share
1989: 46%
1990: 47%
1991: 48%
1992: 46%
1993: 49%
U.S. Scrap Exports (tons)
1989: 11,398,000
1990: 12,097,000
1991: 9,722,000
1992: 9,592,000
1993: 10,239,000
All figures are rounded. 1993 data are preliminary.
Lead
Domestic Scrap Consumption (tons)
1989: 983,000
1990: 1,017,000
1991: 974,000
1992: 1,010,000
1993: 1,001,000
Apparent Domestic Consumption (tons)
1989: 1,519,000
1990: 1,477,000
1991: 1,405,000
1992: 1,455,000
1993: 1,557,000
Scrap Market Share
1989: 65%
1990: 69%
1991: 69%
1992: 68%
1993: 64%
U.S. Scrap Exports* (tons)
1989: 57,000
1990: 79,000
1991: 96,000
1992: 66,000
1993: 57,000
*Includes batteries and other scrap.
All figures are rounded. 1993 data are preliminary.
Nickel & Stainless
Domestic Stainless Scrap Consumption (tons)
1989: 657,000
1990: 697,000
1991: 677,000
1992: 716,000
1993: 683,000
Domestic Stainless Shipments (tons)
1989: 1,472,000
1990: 1,516,000
1991: 1,449,000
1992: 1,514,000
1993: 1,534,000
Scrap Market Share
1989: 45%
1990: 46%
1991: 47%
1992: 47%
1993: 45%
U.S. Scrap Exports (tons)
1989: 292,000
1990: 257,000
1991: 256,000
1992: 246,000
1993: 263,000
All figures are rounded. 1993 data are preliminary.
Paper
Domestic Scrap Consumption (tons)
1989: 20,220,000
1990: 21,736,000
1991: 23,662,000
1992: 26,480,000
1993: 29,169,000
Paper and Paperboard Production (tons)
1989: 78,355,000
1990: 80,344,000
1991: 81,099,000
1992: 84,541,000
1993: 85,957,000
Scrap Market Share
1989: 26%
1990: 27%
1991: 29%
1992: 31%
1993: 34%
U.S. Scrap Exports (tons)
1989: 6,307,000
1990: 6,505,000
1991: 6,598,000
1992: 6,448,000
1993: 5,888,000
All figures are rounded. 1993 data are preliminary.
Plastics
Domestic Consumption Postconsumer Bottles (tons)
1990: 182,000
1991: 282,000
1992: 407,200
1993: 440,500
Domestic Bottle Resin Sales (tons)
1990: 2,013,000
1991: 2,004,000
1992: 2,167,500
1993: 2,313,000
Bottle Recycling Rate
1990: 9%
1991: 14%
1992: 19%
1993: 19%
Total Domestic Resin Sales (tons)
1990: 30,650,000
1991: 30,450,000
1992: 33,850,000
1993: 35,550,000
All figures are rounded. 1993 data are preliminary.
Zinc
Domestic Scrap Consumption (tons)
1989: 227,000
1990: 210,000
1991: 244,000
1992: 245,000
1993: 286,000
Apparent Domestic Consumption (tons)
1989: 1,172,000
1990: 1,092,000
1991: 1,028,000
1992: 1,141,000
1993: 1,243,000
Scrap Market Share
1989: 19%
1990: 19%
1991: 24%
1992: 21%
1993: 23%
U.S. Scrap Exports (tons)
1989: 108,000
1990: 97,000
1991: 81,000
1992: 63,000
1993: 37,000
All figures are rounded. 1993 data are preliminary. •
Despite improved demand for most scrap-related commodities last year, profits remained elusive for many recyclers and primary producers, particularly in the nonferrous and nonmetallic markets.