November/December 2005
It’s a turbulent, tricky, uncertain market out there these days, making it difficult to forecast a market course with confidence. Still, speakers at ISRI’s commodities roundtables offered their best guesses.
By Kent Kiser and Chris Munford
It has been a year of dramatic events—from the record highs in the copper market to the skyrocketing energy costs to the devastation wreaked by Hurricanes Katrina and Rita. And let’s not overlook other factors like rising interest rates, growing inflation fears, shaky consumer confidence, brisk commodity-fund buying, and—of course—China’s growing (and growing) presence on the world stage.
Given these imposing factors—and many others—it’s more difficult than ever to predict where commodity markets are heading. The search for just such market answers prompted about 590 individuals to attend ISRI’s annual commodities roundtable forum, held in Chicago in September. There, they heard speakers from around the world bravely offer perspectives on key commodities such as aluminum, copper, steel, nickel, stainless, and titanium. There was also a special roundtable dedicated to the burgeoning electronics recycling marketplace.
This report captures the highlights of those presentations.
Aluminum Roundtable
The aluminum market is expected to be slightly in deficit for 2005 in terms of supply, yet prices hit an eight-month low in mid-summer. Chinese exports, currency fluctuations, and uncertain demand prospects in mature economies helped drive prices down. Against this backdrop, speakers at the aluminum roundtable attempted to shed some light on the market’s direction.
Primary Factors. Offering a view of the primary side, Fritz Gilbert of Novelis Corp. (Cleveland) stressed that three new factors influence the highly cyclical global aluminum market: the strength of the U.S. dollar, Chinese demand, and commodity-fund activity. Currency trends such as a lower U.S. dollar need to be factored into the aluminum price, he said, whereas the Chinese factor has more to do with political and economic uncertainties.
“We’ve seen tremendous demand and growth potential in China, but it’s uncertain what the central planning agenda is for supply,” Gilbert said, noting that it remains to be seen how alterations to China’s exchange rate will affect the strength of the U.S. dollar. Regarding fund activity, he warned that aluminum is subject to the same forces that drove copper up 8 percent in one week to a record high in mid-September, a move attributed largely to fund activity.
In contrast to copper’s wild ride, aluminum prices are likely to remain relatively stable to slightly weaker through next year, according to Gilbert. Analysts’ opinions suggest that the average 2005 LME three-month price for aluminum will be 84 cents a pound, decreasing slightly to 83.7 cents in 2006, he said.
Uday Patel of CRU Ltd. (London) offered a somewhat less optimistic price forecast. In his view, the average price for aluminum will weigh in at 81 to 82 cents a pound for 2005, while the price in 2006 will remain stable to slightly lower.
The aluminum market has gone from a deficit of almost 400,000 mt in 2004 to being close to balanced in 2005. That situation will likely continue in 2006, Patel said. Consumption has slowed, but production has not increased as much as many industry observers had predicted. LME warehouse inventories continue to be relatively low but were holding steady at around 45 days of global consumption through September, he reported. Developments in other base metals, notably copper, will have a major bearing on the direction of aluminum prices. A weaker U.S. dollar could also provide price support for the metal through the first quarter of 2006, Patel said.
Chinese aluminum output, meanwhile, hit 7.5 million mt in October 2004 but has gyrated between 6.3 million and 7.3 million mt since then. Still, Patel suggested, Chinese producers could have a positive effect on prices going forward. “Developments in Chinese trade will be critical,” he said. “Any sharp slowdown in exports could potentially be very bullish for aluminum, as could any supply cutbacks.”
Aluminum demand is returning to a normal pattern, even as global production begins to accelerate. Demand is expected to grow 4.7 percent this year, fueled by strong U.S. consumption and growing demand in China and other Asian nations, Patel said. European demand is maintaining “reasonable” levels, propelled by growth in Eastern Europe.
For 2006, the outlook has become more clouded, however, Patel said. CRU still expects to see solid growth, but this could be tempered by a global economic slowdown, rising interest rates, and declining consumer and investor confidence.
“U.S. demand will eventually react to reconstruction in the aftermath of Katrina. Scrap availability will increase sharply in the U.S. market, but it is too early to make precise estimates,” Patel said. Even so, he warned that the global destocking cycle has been more pronounced than expected.
Secondaries Hang On. The U.S. secondary aluminum industry has seen even more consolidation and change than the domestic steel industry, going from 14 secondary smelters in 1975 to just four today. Also, of nine die-casters three decades ago, only five are still around, noted Frank Weissert of Behr Aluminum Inc. (Rockford, Ill.).
Secondary aluminum consumption will continue to grow, albeit more slowly than in recent years, particularly in the automotive industry, Weissert said, adding that Behr is more concerned about rising costs.
“We’re getting hammered,” he asserted. “Natural gas costs are way up, our freight costs have risen 25 to 30 percent in the past six months, and higher prices for raw materials like chlorine have added about 2.5 cents
to our costs [per pound of aluminum produced].”
Other worries include a “daisy chain of bankruptcies” in the secondary aluminum industry and among the industry’s customers, Weissert said. He cited auto parts suppliers, die-casters, and foundries in particular but hinted that automakers themselves might be at risk. Notably, he added, the new bankruptcy law (which went into effect Oct. 17) would make it more difficult for companies to reorganize and continue operating. He also echoed concerns about the effects of commodity-fund activity on the price of exchange-traded metals.
Turning to China, Weissert said its demand “will continue to grow, but it will not kill our industry. There are 17 million cars and trucks sold annually in North America, each with more than 300 pounds of secondary aluminum, on average.”
Copper Roundtable
Copper soared to record highs this year, though many say the metal was merely responding to a shortfall in inventories rather than new demand. LME warehouse levels fell to the lowest levels in more than three decades. Prices, driven in many cases by commodity investment fund activity, responded accordingly. That said, copper production in the second of 2005 is projected to be greater than consumption and, increasingly, there are warnings that a market correction is imminent.
In a departure from typical ReMA panel discussions, representatives of diverse sectors of the copper and brass market sat in easy chairs to discuss market questions posed by moderator Michael Friedman of Scrap & Waste L.L.C. (Louisville, Ky.).
The first discussion topic was one still fresh in everyone’s mind: hurricane damage in the Southeast. The answers diverged widely depending on the sector being discussed.
A Fund-Driven, Hurricane-Powered Market. “We will see continued high prices for copper” in the near term, said Megan Hovey of metals trading firm Refco L.L.C. (Hudson, Ohio). “Hurricanes Katrina and Rita had an impact, and a lot of (commodity) funds are buying into that.”
Hovey warned, however, that the trade sees the recent 10- and 15-cent price spreads narrowing and the copper price backing off at some point. “There’s basically no reason for the price of copper to be this high. It’s fund-related,” she said. “The funds are like ambulance chasers.”
Chinese demand, she stated, will continue to support copper demand at relatively high levels, though not at the record highs seen in September. Her estimate of the average copper price for 2006 is $1.45 to $1.55 a pound compared with recent prices around $1.80.
Regardless of the psychological impact of hurricane damage on copper trading, the recent storms in the Southeast will probably have much more impact on ferrous than on nonferrous recycling trends, said Richard Rifkin of OmniSource Corp. (Fort Wayne, Ind.).
“In the first phase [of reconstruction], there will be lots of scrapped autos, siding, and so forth,” he noted. “In the second phase, you’ll see more nonferrous coming from the utilities as they replace destroyed wire and equipment such as transformers, but the impact won’t be as major as in ferrous. It will be smaller and more gradual.” When scrap supplies begins to increase, he added, the export market may be less helpful to the market than it has been in the past.
“The export market has traditionally [given the U.S. recycling market] an advantage, but recently there has been less demand from overseas buyers,” he said. “So what happens will be a function of what’s going on in the [copper] market when material comes available.”
Allan Sabol of brass and bronze ingotmaker Colonial Metals Co. (Columbia, Pa.) said his company was relatively unaffected up to that point.
“We weren’t drawing a lot of material from that area,” he said. “Much of the [brass scrap] in the Gulf went to the export market. Down the road, if dynamics change, perhaps more will stay in the domestic market.” David Lane of air-conditioning
component manufacturer Lennox International (Richardson, Texas) said his company was still trying to assess the impact of the hurricanes.
“We’re not expecting as big an impact on commercial as on residential air conditioning units,” he reported. “The impact will be more in repair work. But we’re talking about seven million residential and commercial ACs. There will be a large number of units replaced over the next 12 months.”
Talking About Trends. A question from Friedman about business trends, including rising energy and other costs, brought a spirited response from discussion participants.
“It’s a mixed bag for us,” said Rifkin. “In general, scrap supply has been tight. No. 2 clips are probably the most affected. The export market has absorbed the No. 2 or lower-grade clips. We’ve seen spreads tighten, and the export market has been a big factor. Some of our customers have had to move up to No. 1 clips.”
Sabol noted that prices for his company’s products are up but so are transportation and other costs. It’s not scrap availability his company is concerned with so much as affordability of scrap. Colonial Metals competes in an industry in which its products are oversupplied in the market. The company isn’t able to raise prices, but costs keep rising anyway, he said.
Rifkin agreed, likening the shrinking U.S. manufacturing base to everyone sharing a 10-inch pizza now as opposed to a 16-inch pizza in the past. It’s not a level playing field, he said, adding that many overseas competitors don’t face the same costs of doing business, such as healthcare, which are constantly rising for U.S. manufacturers.
Copper Threatened by Innovation? Lennox’s David Lane noted that competition from abroad has its limitations, however. As shipping rates have risen, logistics has become a factor that can protect the U.S. domestic market. On the other hand, he said, air conditioners are now being built for less than it costs Lennox to build a coil.
“We’re competing in two different worlds,” Lane said, adding that his industry is attempting to fight back with innovation. “One of our competitors is coming out with an all-aluminum coil. This could be a breakthrough in mass-market equipment. There’s no copper in it. Will the market accept it? In the residential HVAC market alone, there are 250 million pounds of copper at risk (annually) if copper in coils is completely replaced by aluminum.”
Ferrous Roundtable
The steel industry is undergoing unprecedented change on a global scale, which is affecting every aspect of the industry and its supply chains. Now it’s more crucial than ever for recyclers to know which direction the ferrous world is heading, but sweeping changes also make the market more unpredictable. Speakers at the ferrous roundtable were able to present, if not an explicit roadmap of the future, at least some sign posts on what to expect.
A Steelmaker’s Perspective. Competition in the steel industry has produced larger, stronger companies that churn out more steel with greater efficiency than ever before. Consolidation in the steel sector is old news, but globalization is forcing the trend into hyper-gear worldwide. Consolidation also extends to the internal operations of many producers.
“We have consolidated our purchasing globally,” noted John Harris of Mittal Steel (Innisfil, Ontario). “This means we have gone to great lengths to buy [ferrous raw materials] as a group rather than as individual mills.” Mittal, now the world’s largest steel producer, consumes 10 million mt of scrap in the U.S. market each year, so the company’s purchasing strategy matters greatly to both itself and its suppliers. Purchasing scrap as a large group has its challenges, however, because the market for ferrous scrap is much more regional than the markets for most other commodities. As a result, four buyers in three locations buy scrap for Mittal’s 10 North American mills.
Complicating the picture for recyclers is the fact that large integrated producers such as Mittal have broad flexibility to use scrap substitutes such as DRI. In fact, Mittal produces its own DRI, using it to adjust for variations in the price and availability of scrap, iron ore, and energy. Of the global supply of DRI that ends up on the open market, more than half goes to U.S. mills.
Because larger steel groups can buy more efficiently, continued steel industry consolidation will help cap or reduce scrap prices, Harris said, predicting that scrap supply and demand will remain stable through 2006. Other factors that would tend to hold scrap prices in check in the short term include the upcoming year-end holiday season, which will slow business activity.
There are also many factors that support scrap price increases, Harris said. These include continued consolidation in the scrap industry, anticipated increases in land transportation, and an expected rise in ocean freight rates. The latter has a particularly significant impact on the steel industry, which currently accounts for 29 percent of global sea cargo, he reported.
“These factors exclude currency, oil, and weather-related issues,” Harris added, as if to underline the difficulty in predicting the direction of a market with so many fast-paced variables involved.
Harris did lay out Mittal’s expectations for ferrous scrap in the near term, however. The steelmaker anticipates that North American scrap cycles will remain “normal” but that exports will decline. Scrap cycles will also be stable in Europe and the Middle East, with Turkey maintaining recent import levels. In the Far East, India will import increasing quantities of scrap, while demand in other nations in the region will decline. As for scrap demand in China, Harris asserted that it has “leveled off” and could “start to recede in the next few years.”
Overall, he concluded, “the market will continue to be cyclical, interactive, and volatile.”
The Analyst’s Crystal Ball. Many of Harris’s expectations were echoed on the analyst side. Consolidation in the steel industry and the rise of both demand levels and production rates in China are key factors, said Michelle Applebaum of Michelle Applebaum Research Inc. (Highland Park, Ill.).
After years of consolidation, the U.S. steel industry boasted 19 producers as recently as 2001, when the five largest players had a combined 52-percent market share, she pointed out. Today, there are 12 U.S. producers and the largest four have 79 percent of the market. Within five years, it’s probable that there will be just four U.S. players, each retaining a market share of 18 to 32 percent, Applebaum said.
“Steel buyers’ inventories, meanwhile, have dropped on all metrics used by ISM [Institute of Supply Management] uses,” she noted, citing the institute’s August survey. “When asked how many months existing inventories would last, most buyers said they are now in the one- to two-month range. No buyers had inventories greater than five months—a vast improvement from prior months.”
Pressure on the U.S. sector from imports seems to have declined, Applebaum said, adding that “roughly 92 percent of [ISM survey] respondents indicated that sales efforts by foreign mills [were] ‘the same or less aggressive’ than previously, while no respondents indicated that they had become more aggressive.” Applebaum’s analysis also had good news for U.S. steelmakers regarding China, which she referred to as an “accidental exporter” of steel in 2004.
“While China remains the single largest risk to the domestic steel industry, we believe that the Chinese export position in late 2004 was an accidental overshooting of their growth in production, which accelerated ahead of consumption,” she stated. “China is a temporary exporter, at best, and will likely be a better importer than exporter over the remainder of the decade.”
An International View. Shedding light on increased ferrous scrap demand in India, Vidur Sahgal of Interocean Group (New Delhi, India) noted that steel is becoming too expensive to produce from iron ore there. As a result, ore demand is tapering off and scrap imports are rising, he said.
India’s domestic demand trend for iron ore in 2004-2005 increased only 3 percent compared with 9 to 10 percent in prior years, he said. On the scrap side, Indian mills mostly seek heavy grades such as HMS and rail scrap that conforms to ReMA specifications 200-206 and R50-65. Shredded scrap (ISRI specifications 210-211) is also in demand, he reported.
India now imports 1.8 million mt of ferrous scrap annually at prices this year ranging from $185 to $250 a mt c.i.f. India port. This includes vessels imported for shipbreaking, he said.
“Almost all origins are acceptable, but I see [scrap of] U.S. origin as the best in terms of quality and reliability” for Indian mills, Sahgal added.
Feeling Steel’s Effects. End users of steel also face increased competition and uncertainty. Myers Container Corp. (Emeryville, Calif.), a maker of steel drums, for example, is grappling with the same pressures that other industry sectors face, notably rising costs, consolidation, and globalization, said Kyle Stavig. Also, steel supply and pricing are major concerns.
There are 11 steel drum manufacturers in the United States producing more than 27 million units a year, about 90 percent of which are standard 55-gallon drums. While there has been some consolidation in the industry, there will certainly be more as the steel container market grows increasingly competitive, Stavig said.
“The steel drum is essentially a commodity. It’s a global trading unit, if you will,” he noted. “We’re a niche [industry] that continues to consolidate in the face of rising competition from nonbulk and nonsteel alternatives,” he said, adding that his company consumes more than 25,000 tons of steel annually.
Until recently, steel supplies were stable, but now “there’s a frenzy going on out there,” Stavig asserted. “Last year, we were put on allocation for cold-rolled steel for the first time since the 1970s.”
Another trend, he said, is that rising steel prices have led to “lightweighting”—that is, production of lighter drums using thinner steel. This trend can create problems when it comes to reconditioning. The thinner drums aren’t as durable and often can’t be reconditioned, especially for hazardous materials use. Thus, they end up in the recycling stream instead. For Myers Container, this trend could mean that its subsidiary that reconditions and recycles used steel drums may have to scrap a larger percentage of units in the future.
Nickel Roundtable
The Pittsburgh Chapter’s annual nickel/stainless roundtable and consumers’ night dinner, held Aug. 31 in Pittsburgh, attracted more than 230 processors, brokers, and consumers.
The event began with a special luncheon featuring keynote speaker Sen. Rick Santorum (R-Pa.), who briefly discussed the estate tax issue before answering questions from the audience. The wide-ranging questions touched on the status of the U.S. manufacturing industry, U.S. oil refinery capacity, relations between America and Cuba, the Iraq war, and U.S. border challenges.
The roundtable portion of the event spotlighted four speakers who covered different sectors of the metal industry:
Stainless and Nickel Roll On. In 2005, world nickel production is expected to increase 29,000 mt, while global nickel consumption is projected to grow 22,000 mt, said John Smith of Falconbridge U.S. Inc. (Pittsburgh). Nickel demand is being driven in part by global stainless production, which totaled almost 25 million mt in 2004. In the first half of 2005, world stainless production was 12.9 million mt, 5.5 percent ahead of the same period last year, reports the International Stainless Steel Forum (ISSF) (Brussels, Belgium). Asia, especially China, is the big engine driving this production growth. In 2004, Asia’s stainless production grew almost 12 percent to about 12 million mt, ISSF says. And in the first half of 2005, Asia was the only region in the world to post higher stainless production, increasing its output just over 13 percent to 6.5 million mt, according to ISSF.
Nickel demand has also been rising in nonstainless markets, which are estimated to grow 5 percent this year, though Smith stated, “I personally think it’s a lot stronger than that.” Growth in nonstainless markets, he added, has been “strong across the board,” which is “an extremely key point that’s being missed by a lot of people.”
There is also promising growth in the nickel-chemical niche, especially for nickel-containing automotive batteries. “You will hear more about the consumption of nickel in batteries for the transportation industry—it’s going to become meaningful,” Smith said.
Though the stainless market underwent a destocking phase in the third quarter, nickel prices held up due to low exchange stocks. About this situation, Martin Abbott of American Metal Market stated, “Nobody in their right mind is going to sell short on the LME unless they can guarantee that they can deliver into that short position. Even the most bearish commodity trading adviser in the world is not going to go short nickel right now.” According to Smith, nickel stocks are expected to be 104,000 mt in 2005 and 92,000 mt in 2006.
With limited new supply coming onstream in the near term and labor contracts coming up at some producers, nickel supplies will likely remain tight, with projections calling for a 10,000-mt deficit this year and a 12,000-mt shortfall in 2006, Smith noted. The market will be underpinned by “fairly good” global GDP growth next year as well as anticipated strong growth in world industrial production in 2006 and 2007. Given these market dynamics, nickel prices could be $6.87 for this year and $5.97 next year, based on the mean of price forecasts from 25 analysts, Smith said.
There is a caveat, of course, to the current market momentum: “Mounting political uncertainty and high energy prices could put the brakes on growth,” Smith stated.
The Stainless Substitution Syndrome. Alloy substitution is taking place in the stainless market, as 200 Series stainless—which uses less nickel—increasingly replaces T304, the “workhorse stainless grade,” in a variety of applications, said Jack Shilling of Allegheny Technologies (Pittsburgh). This is an important trend, he noted, because 304 and related grades account for 80 percent of stainless usage in the U.S. market, so any substitution affects this largest segment of the market.
What is driving this substitution trend? Economics, for one. As Shilling explained, 200 Series stainless has about half the nickel content of 304, instead using manganese as an alloying element. Thus, the higher nickel prices rise, the greater the economic advantage of using 200 Series stainless. According to Shilling, 200 Series metal will have a “clear economic advantage” compared with 304 “as long as nickel prices stay above $3 a pound.”
Given this economic advantage, the issue boils down to whether 200 Series stainless can match the performance of 304. In particular, is it equivalent to or better than 304 in terms of corrosion resistance, wear resistance, strength, and formability? The answer is “yes,” Shilling said, and he backed up his claim by showing comparisons of 200 Series and 304 in those respects. Thanks to its performance abilities, you can find 200 Series stainless in an array of products, such as sink drain covers, cookware, industrial washing machine spinner baskets, railroad cars, truck trailers, hose clamps, handrails, and beverage dispensers.
Thanks to the economic and performance characteristics of 200 Series compared with 304, “the switch is on,” Shilling stated. “If nickel stays at these kinds of levels—or anything close to these kinds of levels—the financial incentive is too large for this alloy not to replace 304. It will replace 304 around the world.” Offering another perspective on alloy substitution, John Smith of Falconbridge noted that the trend can be viewed either as a glass half empty or glass half full. As he explained, “If 200 stainless is coming at the expense of 300 stainless, the glass is half empty.” But, he added, “if 200 stainless is helping people move up from carbon steel and other materials into stainless steel, the glass is half full.”
EyEing Economic Issues. Several factors hold the key to U.S. economic growth and, in turn, future demand for metals, noted Martin Abbott of American Metal Market.
One key factor is the escalating price of oil, which has many ripple effects across the entire economy. “With oil at $70,” Abbott said, “there’s no way we can pretend it doesn’t hurt.” In contrast to the oil crisis of the 1970s, the current oil situation is not about powermongering among oil producers—it’s about not having enough oil to meet demand. As such, the problem won’t be easily solved. “So I don’t think that we can actually take any comfort nor, in fact, many lessons from the last oil cycle,” Abbott observed. Part of the problem is that China’s demand for oil is growing rapidly, plus there are very few production increases planned. In the United States, there’s also a refinery bottleneck, so even oil that is available can’t be processed into gasoline anyway.
Another key U.S. economic factor is consumer confidence. This is critical because consumer purchases account for 70 to 80 percent of the U.S. economy. Thus, Abbott said, “consumer confidence is absolutely the key to the continued growth of this economy,” but there are signs that it is shaky. In particular, if the U.S. housing bubble bursts, consumer confidence could make a dramatic shift downward.
A third major economic factor for the United States is its hefty deficit, which makes the country dependent on foreign money. As Abbott asserted, “The amount of foreign capital required on a daily basis to run this country is so colossal that we are not actually independent in taking our economic decisions and deciding on our economic direction.” China, as one of the biggest financiers of U.S. debt, truly controls the country’s purse strings. To finance its large deficit, the United States must continually attract foreign investment. To do that, Abbott explained, it can’t let interest rates drop too far and it must control inflation, otherwise “we get ourselves into a complete tailspin.” On the plus side, high energy prices may begin to help the Fed manage inflation without raising interest rates.
Titanium on a Roll. In stark contrast to its depressed days a few years ago, titanium is riding high thanks to growth in its four main market segments of military aerospace, commercial aerospace, industrial/corrosion-resistant products, and emerging applications, said Michael Metz of VSMPO-Tirus US (Golden, Colo.). “This,” he reported, “is the first time in a decade that all four of these markets have been on the upswing simultaneously.”
What’s more, the market looks promising going forward. From 2003 to 2008, titanium demand is expected to grow “on the order of 50 percent,” Metz said, adding that “we’re at the front end of a pretty strong demand uptick that’s really driven by commercial aerospace.”
In that market, regional jets—which accounted for about a third of aerospace demand in 2003—could represent only 20 percent by 2009, he reported. That means that large commercial jets, which use more titanium, are growing substantially in terms of market share and as an absolute number. In 2003, Metz said, there were about 600 large commercial aircraft built, while 900 could be built in 2009. Notably, the new large commercial jets are using far more titanium content than the aircraft they are replacing. The A30—which replaces the 747—has about double the amount of titanium. The 787—which replaces the 757 and 767—is an entirely new aircraft technology that will use an “extraordinary amount of titanium,” he stated.
In a nutshell, there are more planes being built and more titanium being used in each plane, which is creating a “multiplier effect” in titanium demand, Metz said, noting that “this is permanently increasing the amount of titanium being consumed over any cycle.”
In titanium’s other main markets, military aerospace demand is returning to its previous levels of the late 1980s, driven by national security issues as well as concerns about aging plane fleets.
The industrial/corrosion resistance market is seeing “a lot of growth” in niches such as chemical processing, power generation, desalination plants, and heat exchangers, with China and India especially driving this sector. Going forward, this market is projected to grow 1.5 percent annually.
Similarly, emerging titanium markets—including automotive, armor, architecture, consumer goods, sporting goods, energy exploration, and mining projects—are expected to grow about 2 percent a year, which Metz called a “conservative” projection.
On the raw material side, Metz noted that titanium scrap is consumed by the mill-products sector and steel mills that use it for “sacrificial” purposes in their production. The sacrificial sector, which consumes 45,000 to 50,000 mt of titanium a year, has grown in recent years as global steel production has grown.
This growth is important, Metz said, because sacrificial consumers will pay the highest price for titanium. That’s because titanium represents only a small part of the steelmaker’s production costs. If the steelmaker, for instance, only uses 100 pounds of titanium in a 100-ton heat of metal, “it doesn’t matter what the price of titanium is—they’re going to buy it,” he said. In other words, the producer “is not going to shut down a steel mill because of the price of titanium.”
Currently, titanium supplies are tight, in part because there are no longer “buffers” of additional metal in the market. As Metz noted, the U.S. Defense Logistics Agency used to sell 5,000 to 7,000 tons of titanium sponge a year, but “that whole source of supply is gone.” Russia’s supply of obsolete titanium is also gone. This supply tightness, coupled with rising demand, has caused a spike in raw material prices, Metz said.
The titanium industry is responding by expanding titanium sponge production, with plans in Japan, Russia, Ukraine, China, and the United States expected to add about 26,000 mt of new capacity by 2007. More scrap will also become available thanks to the burgeoning aerospace production, though both sponge and scrap supplies will likely be tight until 2007, according to Metz.
Electronics Recycling Roundtable
As end-of-life electronic products fill landfills with a host of potentially toxic substances, the emerging electronics recycling industry is growing despite significant hurdles. Some forward-looking state governments are beginning to lend a hand. Speakers at the electronics recycling roundtable stressed that increased government support is needed to provide incentives to make electronics recycling more viable. A key part of this support should be the creation and promotion of new end-use products and markets. ReMA has been helping by focusing attention on this critical need.
California’s 20/50 Approach. California is leading the way in providing an incentive for recyclers to tackle end-of-life electronics. The state is doing this by means of a law known as SB 20/50, which provides per-pound financial incentives to both collectors and recyclers. Each receives 20 to 28 cents a pound for properly documented transactions. The incentives, termed advance recycling fees (ARFs), are funded through surcharges paid by consumers when they purchase electronic products. Such fees add an average of $6 to $10 to the price of a computer, for example, depending on the monitor screen size. In addition to computers and their peripherals, the California law—which has been on the books since September 2004—applies to VCRs, fax machines, copiers, PDAs, televisions, cell phones, and stereos. ReMA is looking for ways to encourage other states to enact similar legislation.
Such laws are crucial if recyclers are to address the growing global “e-waste crisis,” said John Shegerian, who heads Computer Recyclers of America (Fresno, Calif.), which “demanufactures” electronic products. The eventual goal, he added, is to create an industry and a base infrastructure that doesn’t need any government subsidy.
“Some say there are problems with the program, and there is a lot of paperwork, but the benefits of SB 20/50 far outweigh the glitches,” said Shegerian. In his view, end-of-life electronics represent “the fastest-growing waste problem in the world.” This material “is growing three to five times faster than the capacity of municipal waste systems to handle it. It’s a global issue. Governments are going to have to legislate this problem—and soon.”
U.S. EPA estimates that old electronics already contribute 40 percent of the lead and 70 percent of the heavy metals content in U.S. landfills, noted Shegarian. Other toxic materials found in electronics include arsenic, antimony trioxide, and polybrominated flame retardants. One problem is that, in many regions, no adequate infrastructure for collection and disposal exists for end-of-life electronics.
Dealing With E-Glass. The recycling of electronics also involves glass cullet recyclers, who deal with computer monitor and television screen products containing heavy metals. Glass in older televisions, for example, can contain as much as nine pounds of lead shielding. Manufacturers are trying to move away from lead in television panels, but the technology as it currently exists will continue to require some lead in the television funnel. Fortunately, the glass can be used by both glass smelters and primary lead smelters.
High energy prices have caused glass smelters to favor recycled material because it’s cheaper to melt than creating glass from virgin raw materials, said David Cauchi of NxtCycle Inc. (Mesa, Ariz.), who gave a presentation by Envirocycle Glass Co.
“Recycled cullet will melt twice as fast as raw materials, so [glass smelters] want 50 to 70 percent cullet if they can get it,” Cauchi said. “But there’s a 10,000-metric-ton shortage of cullet right now, and there has been some price movement as a result.”
Glass-to-glass smelters can use cullet as a feedstock, while lead smelters can use it as a silica-lead flux. As a recycler, Envirocycle produces both primary smelter and CRT (cleaned) cullet grades of glass. Cullet grades include funnel base, panel base (with and without lead), and mixed fines base. Clean cullet fetches prices from $50 to $165 a mt, excluding transportation.
Glass is the most costly commodity to manage compared with other recyclables in the electronics stream, noted Cauchi. The four cullet grades must be sorted manually, for example. Though glass can represent as much as 54 percent of the e-waste stream, there are few glass-cleaning and recycling operations in North America.
In addition, because there are fewer lead smelters in North America, glass recycling can be vulnerable to operational glitches. U.S. lead smelter Doe Run Co., for instance, was recently shut down for a couple of months, which created big problems for recyclers involved in the California SB 20/50 program, Cauchi said.
Regulators, he asserted, must establish federal guidelines that define proper management methods for clean cullet versus contaminated cullet for export. He added that lack of state regulatory efforts deters long-term capital investment in cullet recycling.
“We will not move into states with no guidelines in place,” Cauchi said. “We don’t export and we can’t compete with exporters. China is not an option as a place to ship [contaminated] CRT cullet. It’s illegal to do so.”
Recovering Value From E-Scrap. Precious metals are the most lucrative component in e-scrap, but electronic products contain far less precious metals than they once did. Still, the content is significant enough that Noranda Recycling Inc. (San Jose, Calif.) views e-scrap recycling as “aboveground mining,” said Steve Skurnac.
As he explained, gold ore contains one ounce—or less—of gold per mt, while e-scrap can contain as much as 50 ounces per mt. Cell phones alone contain as much as 10 ounces of gold per mt (without batteries), while older circuitboards can contain 5 to 10 ounces of gold and silver per mt.
Despite this, he added, margins are tight enough that it’s difficult to take in e-scrap without charging a fee. For one thing, many electronic devices, such as printers and fax machines, typically contain little or no precious metals. Larger machines like copiers primarily yield steel and a copper-rich fraction with little precious metals, plus glass and large volumes of low-value plastic. Also, the costs to dismantle larger machines can be significant, Skurnac noted.
To obtain the precious metals content, hazardous materials such as batteries, toners, liquids, and mercury-containing copier bulbs must first be removed. Sorting and dismantling makes electronic scrap labor intensive to recycle in the initial stages, Skurnac said. Aside from gold, silver, and platinum-group metals, the metallic component in e-scrap breaks down into several parts, including aluminum, steel, copper, and copper-family fines. All are subject to prevailing market trends and metal exchange prices.
Higher metal prices recently have helped electronics recyclers, but precious metals are not present in great enough quantities to sustain an e-scrap recycling business. It remains critical for recyclers to maximize all available revenue streams to have a viable business model, Skurnac stated.
Plastics are also a major component in end-of-life electronics, and this sector is hobbled by lower prices, in general, than for other recycled electronic components.
The plastics typically used in electronics are composed of mixed resins that are time-consuming and labor-intensive to segregate and often have limited end-use markets, explained Sanford Selman of Asia West L.L.C. (Greenwich, Conn.).
According to Selman, Asia West has developed proprietary scrap separation technology that could help companies recycle plastics more efficiently and cost-effectively—welcome news to recyclers dealing with the lowest-value components in discarded electronics.
“We produce extrusion-grade plastic pellets that are indistinguishable from virgin plastic pellets,” he claimed. “This is a value proposition, both for us and for the [plastics recycling] industry.”
Kent Kiser is publisher and editor-in-chief of Scrap. Chris Munford is a writer based in New Jersey. He formerly held editing positions with American Metal Market, Platt’s Metals Week, and Metal Bulletin.
It’s a turbulent, tricky, uncertain market out there these days, making it difficult to forecast a market course with confidence. Still, speakers at ISRI’s commodities roundtables offered their best guesses.