May/June 2015
The U.S. economy may be
flying smoothly, but a variety of factors resulted in largely dismal scrap
commodity prices in 2014. A few areas managed to avoid the turbulence that
affected most of the market, however.
By Katie Pyzyk
Analysts
had predicted that commodities’ turbulence in 2013 might carry over into 2014,
but even they seem surprised at the ride’s roughness last year. The journey
grew particularly tumultuous when the second half of the year brought steep
declines in commodity prices, leaving many buckling up and looking ahead to
2015 with hopeful glances. But despite what, at times, felt like an inevitable
economic plane crash, some scrap commodities managed to hold their own and
avoid serious damage.
As the global economy fluctuates, commodity
markets follow closely behind. The International Monetary Fund (Washington,
D.C.) initially predicted decent global growth in 2014 but adjusted its outlook
downward throughout the year. “We’re now into the fourth consecutive year of
global activity just over the 3-percent mark,” says Patricia Mohr, commodity
market specialist for Scotiabank (Toronto). “It’s sufficient to kick over the
global economy, but it is not strong enough to have really robust commodity
prices.” During the last commodity run-up in 2007, she notes, the global
economic growth rate was about 4.5 percent.
By last summer, once-hot China’s pullback from
its booming import days touched a cooling finger to nearly all sectors.
“China’s potential is gradually slowing. They’ve overbuilt many manufacturing
industries,” Mohr says. The country’s leaders currently are de-emphasizing
heavy industry and instead are focusing on boosting service-industry sectors
such as banking, insurance, and health care, she adds. That hurts U.S. scrap
traders who rely heavily on China’s purchasing. “Generally speaking, we’re
overly reliant on China, so we really need to diversify in terms of overseas
markets,” says Joe Pickard, ISRI’s chief economist and director of commodities.
The strengthening U.S. dollar further mashed
the soft commodities markets. Although a strong dollar initially seems
beneficial because it signals overall U.S. economic fortitude, it makes U.S.
exports less competitive, which hurts businesses—including many scrap recycling
companies—that depend on exports. “When you have weak demand conditions and
falling prices, the strong dollar compounds those market challenges,” Pickard
says. Excess production of certain commodities, especially in China, also was a
significant factor driving down prices of primary and scrap commodities.
Metals continued their multi-year decline since
peaking in February 2011. In January 2014, the World Bank (Washington, D.C.)
predicted an overall 2-percent metals price decline for the year, but the dip
ended up being 6.6 percent. “Real metal prices have fallen more than any other
commodity group since their peaks in early 2011,” the group wrote in its 2014
first-quarter commodities report. “The prospects of the metal market depend
crucially on the Chinese demand, as the country accounts for more than 45
percent of global metal consumption.” The metals sector’s strong reliance on
China and that country’s economic slip from 7.7 percent gross domestic product
growth in 2013 to 7.4 percent in 2014 help explain the decline in global metals
markets.
Markets that fought to stay on track most of
the year felt the pull of plummeting crude oil prices by year’s end. That
factor added to the market pain of the strong U.S. dollar, deteriorating
overseas demand, China’s commodity overproduction, continued unsteadiness in
European markets, and U.S. transportation issues. “There’s a lot going on that
actually made conditions more complicated last year than what we were
expecting,” Pickard says.
Although most scrap markets faltered in 2014,
plastics provided a glimmer of hope. “Among the scrap commodities, plastics
definitely had the best performance,” Pickard says. U.S. plastic scrap exports
overall rose 14 percent compared with 2013, to nearly 2.2 million mt. China
(including Hong Kong) led demand at 1.65 million mt, up almost 15 percent
compared with 2013. Here’s a look at how the other key commodity sectors fared.
Aluminum
The
light metal’s average 2014 price increased less than 1 percent from 2013, to
nearly $1,900 a mt, or about 86 cents a pound. While world primary aluminum
production increased 3 percent in 2014, U.S. primary production slipped about
12 percent, to 1.7 million mt, according to the U.S. Geological Survey (Reston,
Va.). On a more encouraging note, domestic apparent aluminum consumption crept
upward, to 6.2 million mt, thanks largely to the transportation sector. The
United States is seeing more product substitution to aluminum, particularly in
areas such as automobile manufacturing and packaging, USGS says.
On the scrap side, total domestic aluminum
recovered from scrap grew more than 4 percent, to 3.6 million mt. U.S. aluminum
scrap exports declined in 2014, however, slipping 8 percent from 2013, with
demand from top-purchaser China dropping 16 percent, year on year. Contributing
factors included the stronger dollar, slower Chinese growth, and China’s
penchant for substituting other, cheaper commodities for scrap.
Copper
Although
global copper demand exceeded supply by 475,000 mt in 2014, prices for the red
metal still dropped. “If there’s a global deficit in a metal or commodity,
you’d expect the pricing to go up,” Pickard says, yet the average 2014 copper
price ended up around $6,800 a mt, 7 percent lower than in 2013. “I think there
was concern about Chinese growth [in production] across the commodity
spectrum,” Pickard says. As refined copper production grows and results in
lower prices, “scrap becomes a less competitive substitute for it.”
Domestic copper consumption last year remained
relatively steady compared with 2013, but that did not help the red metal’s
performance, however, because it “is one of the few scrap commodities where
overseas demand is the bigger driver,” Pickard says. U.S. copper scrap exports
declined for the third consecutive year, sliding 9 percent in 2014. Exports to
China, which consumes almost half of the world’s copper, fell nearly 14
percent. That decline marks a considerable shift from China’s hyper-consumption
of primary and secondary copper in recent years. As Mohr notes, Chinese demand
for copper grew 25 percent in 2009 alone, driven by the country’s
infrastructure spending program.
Iron and Steel
A
slight increase in domestic apparent steel consumption in 2014 wasn’t much help
to U.S. ferrous scrap processors. Although the bellwether No. 1 HMS ferrous
scrap price, on average, ended 2014 up 4 percent compared with the 2013 price,
the monthly figures slid throughout the year and fell particularly sharply in
the fourth quarter, finishing at $311 a gross ton in December. “Even though
you’ve got this positive average [for the year], you’ve still got a negative
trend, especially in the second half of the year,” Pickard says.
The U.S. ferrous scrap export market followed
the same downward trend, dropping 18 percent, year on year. Shipments to
Turkey—the largest U.S. ferrous scrap buyer—plunged 31 percent, in part due to
the strengthening dollar, particularly against the Turkish lira, which made
U.S. ferrous scrap less competitive with scrap from other regions. Beyond
Turkey, “China has really dropped off the map for ferrous scrap from the U.S.,”
Pickard says, noting that it imported less than 500,000 mt of U.S. ferrous
scrap in 2014—much less than the nearly 5.5 million mt it imported in 2009.
Nickel and Stainless
Steel
The
average nickel price finished higher in 2014 than in 2013—rising 12 percent, to
nearly $17,000 a mt, or about $7.68 a pound—despite considerable volatility
throughout the year. After reaching its price peak of $8.82 in May, nickel
started a bumpy ride downward, settling at $7.25 in December—13 percent above
its 2014 starting point of $6.41. European manufacturing cutbacks, the threat
of deflation, and nickel oversupply combined to affect nickel prices last year,
USGS says.
U.S. stainless steel production grew 8 percent
in 2014, to 1.64 million mt, in keeping with global stainless output, which set
a record of 41.7 million mt last year, a gain of more than 8 percent compared
with 2013. Domestic stainless steel scrap exports didn’t fare as well in 2014,
falling 15 percent, year on year. Although Taiwan—the largest buyer of U.S.
stainless scrap—cut its imports 15.6 percent, China—the second-largest
buyer—increased its purchases 21 percent. In the same vein, U.S. exports of
nickel scrap rose 18 percent in 2014 compared with 2013.
Indonesia’s January 2014 ban on exports of
unprocessed nickel ore had a powerful effect on the nickel market by tightening
supplies, which supported prices until the general commodity decline later in
the year. According to Pickard, Indonesia’s government imposed the ban because
it wants the nation’s ore “not just mined in Indonesia, but processed into
metal there as well, to develop their economy and add value.”
Lead and Zinc
Lead
and zinc prices took different trajectories in 2014. Lead experienced an
average price decrease of about 2 percent compared with 2013, ending at $2,115
a mt. Although zinc’s monthly price was lower at the end of year than its
late-summer peak, its yearly average was up about 12 percent from 2013, to
$2,160 a mt, due in part to an almost 300,000-mt global zinc supply deficit.
Lead and zinc also diverged in their U.S.
consumption results last year, with lead’s apparent consumption slipping 2
percent from 2013 and zinc’s consumption rising 5 percent, year on year. On the
scrap front, the amount of lead recycled in 2014 matched the 2013 total, while
the amount of processed zinc scrap in the domestic market fell 26 percent last
year. U.S. zinc scrap exports also took a tumble last year, declining 19
percent from 2013, while lead exports increased 6 percent. For lead, “what has
a bigger impact… are exports of spent lead-acid batteries,” Pickard says.
“We’ve been exporting a lot more of the whole batteries, especially into
Mexico, and that’s made for tighter domestic lead scrap market conditions.” The
lead-acid battery industry made up about 90 percent of reported domestic lead
consumption last year, which totaled roughly 1.7 million mt.
Paper and Recovered
Fiber
U.S.
paper and paperboard production experienced its fourth consecutive year of
decline, falling 1.2 percent last year, to about 79.5 million tons, according
to the American Forest & Paper Association (Washington, D.C.). The paper
sector accounted for the decrease, slipping 5.4 percent, to 30.6 million tons,
with newsprint alone plummeting more than 22 percent, to 2.1 million tons, in
part due to the transition from printed to digital information consumption. In
contrast, U.S. paperboard production inched up 1.5 percent, to 48.9 million
tons, as the overall U.S. economy grew. “When people spend more money, there’s
a need to ship more products in boxes and corrugated containers, and that helps
paperboard demand,” Pickard says.
In the recovered fiber arena, the U.S. paper
industry recycled about 51.2 million tons of paper in 2014, up 2 percent from
the previous year, AF&PA reports. That tonnage translated to a recycling
rate of 65.4 percent last year, a gain of 1.9 percentage points from 2013 and
just behind the industry’s record recycling rate of 66.4 percent in 2011.
Despite the market’s recycling gains, the average U.S. monthly composite price
for scrap paper in 2014 was 11 percent below the previous year’s average.
In the export market, U.S. scrap paper
shipments grew approximately 1 percent in 2014, to roughly 21 million tons,
with China purchasing about 14.3 million tons—or 68 percent—of the overall
tonnage, which was roughly a 3-percent decline in its purchases, year on year.
India and Mexico increased their imports of U.S. scrap paper last year by 15
percent and 16 percent, respectively.
Katie Pyzyk is a Scrap contributing writer.