2007 ReMA Convention & Exposition Highlights

MAY/JUNE 2007

With almost 3,800 attendees, ReMA 2007 was the second-largest of the association’s 20 annual conventions and expositions, topped only by the 2006 convention at Mandalay Bay in Las Vegas.
   You could simply credit this success to ongoing strong scrap prices, but there was more to it than that. There was a veritable will to make this convention succeed—not only for the benefit of the attendees and ISRI, but even more for the host city of New Orleans.
   To its credit, after Hurricane Katrina, the association didn’t abandon the city that had treated it so well during previous conventions in 1990 and 2005. The result was a win for attendees, exhibitors, ISRI, and the Big Easy.
   The convention’s theme of “Momentum” seemed right on target. The association was continuing the industry’s giving momentum, which began immediately after Katrina, when ReMA members donated more than $1.5 million to major relief organizations working in the area. ReMA was using the unprecedented run in scrap prices to help New Orleans maintain its momentum toward a full recovery. And ReMA was harnessing the momentum from its record 2006 convention in Las Vegas to serve up yet another successful annual event.
   Before we close the books on this year’s show, we offer this look back at ReMA 2007 and the good times that rolled.

Wrapping Up the Workshops
Beyond the expo hall, which spanned a record 253,000 square feet, this year’s convention offered other impressive numbers, including some 175 exhibitors and more than 45 educational sessions. Of those, the commodity spotlights are always the biggest draw, and that was certainly the case this year. Here’s a review of the main points at those market-focused programs.
Aluminum Supply Constrains Prices. The aluminum market showed much less volatility in 2006 than other base metals, according to aluminum spotlight moderator Stephen Moss of Stanton A. Moss Inc. (Bryn Mawr, Pa.). The LME price had increased 14 percent from the date of the previous year’s spotlight, to $2,811 per mt, whereas other base metals’ growth ranged from 30 percent to 211 percent.
   Why such a weak showing? For one, fundamental pressures were lower, said Catherine Virga of CPM Group (New York). “Compared to other markets, the shocks in aluminum weren’t able to send ripples through the aluminum supply chain because of a highly liquid market,” she said. Global reported stocks of aluminum stood at 4.1 weeks of consumption at the end of 2006, much higher than stocks of other metals, she said.
   Much of that extra supply is coming from China, which is now the world’s largest producer and consumer of aluminum. China was behind 80 percent of last year’s growth in aluminum production and two-thirds of the growth in consumption, Virga said. Looking ahead, CPM predicts China will increase raw aluminum production 25 percent and aluminum products 30 percent.
   Worldwide, Virga expects new capacity and increased production to result in an aluminum surplus of 140,000 mt this year, for 8-percent production growth compared with 7-percent demand growth. “Aluminum prices are stronger right now, and that makes it possible to go and work out some of the energy and labor issues” that resulted in mill closures, she said. “As aluminum prices continue to stay high, you will continue to see restarts.”
   In the first quarter of 2007, investor interest kept prices higher, she said, noting that aluminum is attracting more long-term investors, not those after the hot commodities. Fundamentals might become more prevalent later in the year, causing prices to soften, but CPM’s predicted 2007 average of $2,615 per mt is still well above historic averages. It expects prices to ease in 2008 and going forward, as more production comes onstream, but they should still remain above historic averages.
   Energy is a large part of aluminum production costs, said Bruce Warshauer of Wabash Alloys LLC (Wabash, Ind.), but energy costs hit all producers equally because natural gas prices have been elevated for a while. Both he and Virga pointed out that energy is a factor in the migration of aluminum production to geographic regions where that resource is both abundant and cheap.
   Warshauer described trends in the automotive industry affecting the use of secondary aluminum. North American production is shifting from the Big Three U.S. automakers to Japanese and other companies that have different sourcing models for secondary aluminum, he said. From 2006 to 2012, the projected 1.3-percent growth in auto production is expected to come primarily from Toyota, Honda, and Nissan, he said.
   The aluminum content of cars is increasing, displacing steel and cast iron, but special alloys account for about 95 percent of secondary aluminum in cars. The real secondary growth area is engine blocks, he added, where aluminum has only a 60-percent penetration in the market. Entrance into that market is difficult, though, because of Asian automakers’ vertical integration, self-alloying, and long-term alloy supply arrangements, he said. He expects only 1.4-percent growth in the market because of these and other barriers, and competition for these opportunities will most likely shrink producers’ margins. “Our industry continues to have chronic excess capacity, which creates market pressure,” he warned. “Industry consolidation, I think, is inevitable, but it’s not necessarily a silver bullet.”
Copper on a Bull Run. One topic—funds—dominated the panel discussion at the copper spotlight, which featured Keith Gwozdz of Man Financial (New York), Herbert Black of American Iron & Metal Co. Inc. (Montréal), and Tim Strelitz of California Metal-X (Los Angeles).
Funds, which buy metals for their investment portfolios, have affected the copper market more than fundamentals in recent years. From 2000 to 2006, funds increased their investments in metals more than 400 percent, with index funds leading the charge, Gwozdz said. Not that copper’s fundamentals have been bad. Strong global demand for the red metal, critically low exchange inventories, and underinvestment in mine and smelting capacity in the past 10 years will yield a slight supply deficit this year, he noted.
   That said, the funds have been the real force behind copper’s historic price rise. “Never has there been more money in private hands and in funds to invest in metals,” Black said. With billions
of dollars of leverage, funds wield immense power in “a very small market” like copper, he asserted. “The factors of the funds are so humongous that we’re just little peas and they’re just walking all over us. We’re just in a game that’s so over our heads.”
   That’s why it’s a “total waste of time” worrying about changes in exchange inventories or trying to decipher the market’s direction, Black said. With funds invested in the market, “the rules that we used yesterday no longer apply.” Copper traders who bet right in the market are simply lucky. “Even if you make a good trade from time to time,” he said, “trust me, it was all luck.”
   To Tim Strelitz, fund activity has contributed a “massive amount of volatility” to the copper market, which makes it “very tough for people to operate.” His company, a copper smelter, has dealt with the volatility by hedging its various inventories. The downside is that whenever metal prices rise, so do the firm’s hedging costs, he noted.
   In volatile times like these, Strelitz said, the “smart play” is to find your risk comfort zone and be happy with making a reasonable spread. Black also warned copper market participants to avoid shorting the market “for the simple reason that there’s not a sufficient amount of material around to deliver if the market really spikes.”
   In sum, Black said copper is on a “bull run” that could “test the previous highs of $4.20 and possibly even go higher.”
   The Fate of Cut Grades and Bundles. Will shredded scrap eliminate the market for cut grades and bundles? That was the central question of the ferrous spotlight, which featured Matthew Parker of Metal Management Northeast (Newark, N.J.), Stuart Gray of Gerdau Ameristeel (Tampa, Fla.), and John Harris of Arcelor Mittal (Innisfil, Ontario).
   The growing popularity of mega­shredders—those with at least 120-inch chambers—has led to more shredding of cut grades and bundles, Parker said. Currently, there are about 39 mega­shredders in North America, with an annual processing capacity of about 2.3 million tons. Car bodies and white goods alone can’t feed these high-capacity machines. As a result, he said, “It’s widely thought that megashredders are going to shift over into the other grades of scrap, including heavy melting steel and baled scrap.”
   Shredded scrap has definitely claimed market share from cut grades and bundles, growing from 18 percent of the scrap mix at U.S. steel mills in 2001 to 21.4 percent in 2006, Parker said.
For steel mills, shredded scrap offers several advantages, noted Stuart Gray:
• Density—Shredded scrap has a density of 63 pounds to 90 pounds per cubic foot, much better than blended scrap, which averages 44 pounds to 57 pounds per cubic foot, Gray said. With denser scrap, steelmakers need only two buckets of scrap to make a heat vs. three buckets of conventional blended scrap, thus saving charging time and energy, he said. Fewer buckets also means fewer cycles for heavy equipment and cranes.
• Energy Efficiency—Due to its smaller size and greater surface area, shredded scrap melts faster and requires only 93 percent to 97 percent of the energy of larger scrap, Gray said.
• Productivity—Shredded scrap’s advantages translate to “a fairly significant increase in productivity” for steelmakers, Gray said. By his calculations, a mill that uses 100-percent shredded scrap in a 300-day operation could produce almost 118,800 more tons a year.
Shredded scrap has some disadvantages, however, Gray stated. For one, it’s more expensive than other scrap grades. The material also can create agglomerations on furnace walls and bridge over the furnace tap hole, causing production problems and delays. Shredded scrap can contain residual metals such as copper, tin, zinc, chrome, and molybdenum, which can be a boon or a bane depending on the type of steel being made. Plus, the equipment in certain mills simply can’t accommodate shredded scrap in its loading or melting operations, Gray said.
   Offering a big-picture look at the steel market, John Harris noted that global steel production reached a record 1.2 billion mt in 2006. Mills consumed 555 million mt of ferrous scrap last year, with purchased scrap accounting for 419 million mt of that total. Scrap demand will continue to grow along with steel production, fed by a global scrap reservoir estimated at 18.5 billion mt as of January 2007, he reported.
   In the future, scrap specifications will become more critical to steelmakers, and producers will likely use more alternative metallics to achieve the necessary quality levels, Harris said. Also, steelmakers will attempt to reduce the volatility in their scrap supplies by acquiring more material through off-market approaches such as buyback arrangements with steel service centers and other customers.
Nickel Prices Up and Away. Despite record prices for nickel in 2006, prices will go even higher before they start to descend, said Jason Schenker of Wachovia Corp. (Charlotte, N.C.) at the nickel/stainless spotlight. Though demand, driven by economic growth, is growing more slowly—at least until the second half of the year—and he sees some increase in supply, “it’s barely enough to meet demand needs,” he said. So for nickel, from both a fundamental and a speculative standpoint, “we’re likely to see some upside price risk in the next two quarters, but at the back end of the year, prices will be a little bit softer,” he said. He predicts nickel will average $43,000 a mt this year, dropping to around $36,000 a mt next year because of more supply and less speculation.
   Demand growth in part is spurred by the sales of hybrid automobiles, which contain nickel-metal hydride batteries. Interest in hybrids has grown as gas prices have increased, he said. This spring’s gasoline demand and prices have already reached last summer’s levels, Schenker said, and gasoline inventories and imports are low, creating upside price risks. Other demand factors are the slowing housing market, because sellers install stainless steel appliances to boost homes’ appeal, and the “significant increased demand” for high-alloy jet engines.
   Mo Ahmadzadeh of Mitsui Bussan Commodities (New York) likened nickel prices to the emperor’s new clothes: Market participants are willingly not “recognizing the absurdity of the situation of $22 nickel and $4 costs.” Stainless steel drives the nickel market, Ahmadzadeh said, and stainless production recovered sharply last year, with 13.5-percent growth. He predicted 5-percent annual growth for the next three years, which will drive nickel consumption. China has displaced Japan as the world’s largest stainless producer, generating more than 5 million mt in 2006, and Chinese demand for stainless will continue, he said. Various production startup delays and last year’s Inco strike “effectively allowed 150,000 mt of production to be lost over the past three years,” Ahmadzadeh said. Looking forward three years, though, he sees no more than 200,000 mt of production growth.
   Ahmadzadeh named some factors leading to nickel’s “extraordinary price spikes.” First, LME stocks are below 5,000 mt, he noted, which encourages speculation. Second, LME open interest has been “declining very quickly as the prices run up.” Third, he said, nickel’s daily cash price has been very close to the value of the previous month’s average. If that continues, he warned, a “day of reckoning will come … when the market turns,” creating a snowball effect. Finally, fund interest is driving market speculation, he said, and “the willingness of these [funds] to remain or pull out is a very difficult question for us.” But, he noted, it took 10 to 15 years for funds’ interest to develop, and he expects it will take just as long for them to lose interest. All in all, he said, “this nickel market is definitely not for the fainthearted.”
   China and India are increasing their low-nickel stainless steel production, which worldwide reached 11 million mt last year, Ahmadzadeh said, and Vikram Kochar of Universal Metals (New York) spoke further about developments in LNSS. China and India are scrambling for alternatives to expensive 300-series stainless, he said, because their domestic consumers can’t afford high-priced stainless goods. Some disadvantages of LNSS—it’s magnetic, it corrodes more easily, and it has an inferior appearance—are not deterrents for many applications, Kochar said. But the lack of nickel also makes LNSS more difficult to process and mold, creating additional costs. Further, LNSS does not meet U.S. specifications, thus many U.S. manufacturers won’t use it. This leaves their products in competition with cheaper 200- and 400-series stainless goods produced in India and China, he said. Though high-nickel stainless will always be in demand, Kochar said, increased use of LNSS might reduce nickel demand, thus lowering its costs.
Paper Prognostications.  The United States recovered 53.5 million tons of scrap paper in 2006 for a recovery rate of 53.4 percent, up from 51.5 percent in 2005, said Edward Tucciarone of Smurfit-Stone Container Corp. (St. Louis) at the paper spotlight. Though U.S. mills have decreased their scrap consumption 7 percent compared with their 1999 peak, other countries—especially China—have more than made up the difference. That trend is evident in the steady increase of U.S. scrap paper exports, which grew 10.3 percent in 2006 compared with 2005, Tucciarone said. China alone purchases 57 percent of U.S. scrap paper exports, and it continues to drive the recovery of and demand for U.S. mixed paper. The recovery of U.S. mixed paper, in fact, increased 14.2 percent—more than any other grade—in 2005 and 2006 compared with 5.6 percent growth for high grades and pulp substitutes, 2 percent for OCC, and -1.8 percent for ONP, Tucciarone said.
   Even though U.S. paper recyclers enjoyed strong demand in the first quarter of this year, 2007 will be a challenging year overall for the industry, predicted George Chen of G&T Trading International (Clifton, N.J.). Chen, who serves as vice president of ISRI’s Paper Stock Industries Chapter, outlined the following six major challenges for U.S. paper recyclers:
• Despite steady gains in U.S. paper recovery, “there still may not be enough supply for future demand,” he said, adding that there could be 9.5 million tons of annual new demand for scrap paper worldwide.
• As single-stream curbside collection programs continue to expand to more cities and states, “the quality of the recovered paper could become critical,” Chen stated.
• On a related note, China and India dislike the quality of paper recovered in single-stream programs, which has led to more rejections of U.S. scrap paper shipments to those countries.
• The PierPASS program at the ports of Los Angeles and Long Beach could get implemented at other U.S. ports. PierPASS encourages shippers to move their cargo at night or on weekends to reduce truck traffic and pollution, and it levies fees on shippers who use the ports during the day. This program “has really changed many L.A. packers’ operations and cost structures,” Chen said.
• U.S. scrap paper exporters must meet new regulations for obtaining a CCIC inspection certificate, and they must “pay attention” to AQSIQ license renewal procedures. Also, approved self-inspection shippers must guarantee their shipments by posting a bond to cover possible rejection costs in China.
• Finally, sorted office paper, heretofore a “very popular grade,” needs to be “properly defined by standards and practices,” he said.
   Reviewing the Mexican paper market, Rogelio Silva of Durango-McKinley Paper Co. (Arlington, Texas) said the country’s paper production was 4.45 million mt in 2005, while its apparent consumption was 6.16 million mt, with expectations to reach 8.1 million mt by 2010. Mexican mills consumed 4.2 million mt of recovered fiber in 2005, with brown grades accounting for almost 59 percent of that tonnage and OCC claiming a 21-percent share, Silva said. Since 1996, Mexico’s demand for scrap paper has increased almost 45 percent, from 2.9 million mt to 2005’s total of 4.2 million mt, of which 2.6 million mt came from domestic sources and 1.6 million mt from imports.  According to Silva, Mexico would like to increase its domestic paper collections beyond its current recovery rate of about 46 percent so it can reduce its consumption of imported fiber.

Recognizing Recycling Excellence
Among the notable events at ReMA 2007, the association announced the recipients of its Lifetime Achievement Award and Design for Recycling® Award.
   Careers of Distinction. Morley Denbo, cochairman of Tennessee Valley Recycling LLC (Decatur, Ala.), and Sidney Grossman, former CEO of Grossman Iron & Steel Co. (St. Louis), each received the Lifetime Achievement Award for their outstanding contributions to the scrap recycling industry throughout their careers.
   After serving in the Navy during World War II, Denbo married Barbara Palkes and began working at his father-in-law’s scrap operation. In 1951, at age 24, he bought his uncle Ben’s business and renamed it Denbo Iron & Metal Co. Inc. From there, Denbo grew the company—renamed Tennessee Valley Recycling in 2000—into the largest scrap processor in Alabama. Throughout his career, Denbo has been a dedicated supporter of ReMA and ISIS, an ReMA predecessor association. Today, Denbo remains active in the family scrap company, serving as the principal financial officer who represents the firm to banks.
   Sidney Grossman was just 21 when he joined his father in the family business, Grossman Iron & Steel Co. It was 1939, and Grossman had just graduated from Washington University with a degree in chemical engineering. When his father died in 1943, Grossman—just 25—became president of the company and began making his mark on the industry. He became a dedicated member of ISIS, serving two terms as its St. Louis Chapter president and as a national director-at-large.
   In business, Grossman gained a reputation for honesty and innovation. In the 1940s and 1950s, Grossman Iron & Steel was one of the first baling operations in the Midwest. In the 1950s, he led the effort to have the word “scrap” replace the word “junk” in the St. Louis Yellow Pages. In the early 1960s, his company installed an automobile shredder when that technology was new. He also diversified his business into related niches such as demolition and commercial waste hauling, and he was an early explorer of data processing and computer systems for scrap operations.
Designs on the Future. The U.S. Environmental Protection Agency received ISRI’s Design for Recycling Award for its Design for the Environment program.
   ReMA recognized the EPA’s program for its leadership in creating innovative design partnerships and its dedication to empowering businesses and industry sectors to incorporate environmental considerations, along with performance and cost considerations, in their design decision-making processes.
   EPA’s Design for the Environment program is one of its premier partnership programs, working with individual industry sectors to compare and improve the performance and human health and environmental risks and costs of existing and alternative products, processes, and practices. The program’s projects promote integrating cleaner, cheaper, and smarter solutions into everyday business practices.
   ReMA established the Design for Recycling Award last year to honor a program, company, or individual whose product or program design has achieved one or more of the following: a reduction in the number of different recyclable materials; a reduction or elimination of hazardous constituents; an increased yield of the product’s recyclables; an improvement in the safety of recycling; and a design that allows for easy disassembly for recycling.

ISRI’s Party Gras
After all the workshops, after all the awards, after the expo hall was closed and dismantled, after virtually everything, ReMA still had one final convention treat—the Mardi Gras-themed closing party, dubbed “A Taste of New Orleans,” which treated guests to some of the best food, music, and fun the Big Easy could conjure.
   You can’t have a great Mardi Gras party, of course, without the right venue, and none could have been better than Mardi Gras World. The facility, located on the west bank of the Mississippi River, is known the world over as the largest builder of Mardi Gras floats and other fantasy decorations. A brass band greeted guests at the door, serenading them as they entered the surreal atmosphere inside. There, colorful, oversized float decorations lined every hallway and room, depicting faces, figures, characters, and creatures of all types—from Marilyn Monroe to King Kong and beyond.
   After adjusting to the surroundings, guests found something they could really sink their teeth in—food stations hosted by some of the best restaurants in New Orleans. Guests had their choice of eating in the main room, where a zydeco band held sway, or retreating to the quieter anteroom, where a jazz band entertained a more intimate crowd.
   No sooner had the bands stopped for a break than a Mardi Gras parade started snaking through the facility, led by two New Orleans Police motorcycle escorts. ReMA Chair Frank Cozzi and his wife, Josephine, led the entourage as king and queen of the parade, with other ReMA national leaders riding behind, tossing plastic beads to the masses.
   As a finale to the evening’s activities, ReMA Convention Committee Chair Kendig Kneen of Al-jon Inc. (Ottumwa, Iowa) announced the winners of a special raffle. During the convention, ReMA members purchased $100 tickets to support the Louisiana Restaurant Association’s education foundation and the construction of teaching kitchens in two local high schools. These kitchens will help “train the food service workers this city needs today and train the chefs who will become the city’s next generation of culinary masters,” Kneen said.
   The raffle, which raised $38,000 for LRA’s education foundation, offered several small prizes of New Orleans cookbooks and two grand prizes: a trip for two to the 2008 Mardi Gras celebration in New Orleans, including a place on Harry Connick Jr.’s Krewe of Orpheus parade floats and tickets to the Krewe of Orpheus ball. Albert Cozzi of Cozzi Enterprises Inc. (Burr Ridge, Ill.) and Mary Lynn Thompson of Keystone Iron & Metal Co. Inc. (Pittsburgh) were this year’s lucky grand-prize winners.

Clark, Vegh Split PAC Raffle Prize
Carl Clark of Adams Steel (Anaheim, Calif.) and Irene Vegh of Metal Conversions Ltd. (Mansfield, Ohio) won this year’s ReMA PAC reverse raffle, agreeing to split the grand prize of $30,000. The raffle, held during ISRI’s convention in New Orleans, also had two early prize winners, Brad Parkhouse of Parkhouse Tire Inc. (Bell Garden, Calif.) and Joe Fostek of J&M Recycling & Consulting Inc. (Greens­boro, N.C.), each of whom won $500. The ReMA PAC raffle—which has sold out the past three years—consists of 1,000 tickets sold for $100 each, with the goal of raising $100,000 for the PAC’s activities. Jim Lawrence of ELG Metals Inc. (McKeesport, Pa.), chair of ReMA PAC, sold the most tickets again this year. For more on ReMA PAC, visit www.isri.org/isripac or contact Billy Johnson at 202/662-8548 or billyjohnson@isri.org.

Golfing for a Good Cause
The day began in cloud and rain but ended in sunshine—an apt analogy for the positive turnout of the annual Recycling Research Foundation golf tournament, held April 18 in conjunction with the ReMA convention.
   This year, Stonebridge Golf Club of New Orleans—reputed to be the area’s newest and finest course—hosted the tournament, providing a worthy challenge for the event’s 119 golfers. In the end, the tournament raised about $22,000 for RRF, which funds cutting-edge research to advance the scrap recycling industry. The winning foursome was Doug Bailess and Dave Miller of Cronimet Corp. and Ron Jenkins and Rusty Manning of Riverside Engineering Inc.
   The RRF tournament couldn’t have succeeded without the generous support of sponsors. Thanks to the following companies for making this year’s golf outing a great success: Sims Hugo Neu Corp. and Government Liquidation LLC (beverage cart sponsors); Stanley LaBounty and Bowe Knives ($2,000 gold sponsors); Riverside Engineering ($1,000 silver sponsor); and William Reisner Corp. ($500 bronze sponsor).
   In addition, 15 companies sponsored holes for $250 each, with some firms sponsoring multiple holes: All Scrap Metals LLC; Allied Alloys; American Pulverizer Co.; Annaco Inc.; Asko Inc.; Benlee Inc. (four holes); Bodner Metal & Iron Corp.; Caterpillar Inc. (two holes); ELG Metals Inc. (two holes); Granutech-Saturn Systems Corp.; Harris Waste Management Group Inc.; Jack Gray Transport Inc.; Rosenthal Collins Group; Steinert U.S. LLC; and The Shredder Co. LLC.
Allied Alloys and Government Liquidation also provided giveaway prizes for the tournament.
   As ReMA closes the books on this year’s convention, mark your calendar for next year’s show, April 6-10 at Mandalay Bay in Las Vegas. ReMA will celebrate its 20th anniversary and try to top its record 2006 convention at that venue. See you there!

—Lindsay Holst, Kent Kiser, and Rachel H. Pollack