July/August 1999
With improving global scrap markets and its newly elected officers, the BIR had much to celebrate at its spring convention in Rome.
By Kent Kiser
Kent Kiser is editor of Scrap.
When the Bureau of International Recycling (BIR) met last October in its headquarters city of Brussels, the weather and the state of world scrap markets was gloomy, marked by dark clouds and pessimism.
But when the association met in Rome in late May for its spring convention, the weather was sunny, reflecting the improving prospects for most scrap markets after more than a year of depressed conditions.
Other big changes were afoot within the BIR itself as it ushered in a new president, Barry Hunter of Keywell L.L.C. (Elizabeth, N.J.), and a new treasurer, Björn Voigt of Thyssen Sonnenberg Metallrecycling GmbH (Duisburg, Germany).
Are the recent market recoveries real? Will the reports still be upbeat when the BIR meets in Prague this October? Here’s what a handful of scrap executives at the Rome meeting forecast for their markets.
Nonferrous Waits on Prices
The state of nonferrous scrap markets can be summed up as so: Rising demand and tightening supplies, giving hope for improved prices.
The U.S. economy, for one, continues to be strong, perpetuating a “very high level of industrial production and strong demand for the products made from our scrap,” said Robert Stein of Louis Padnos Iron & Metal Co. (Holland, Mich.).
In the copper and brass niche, industrial scrap continues to flow, but obsolete material is tight due to low prices. Scrap demand, meanwhile, remains so robust that scrap prices “have moved up in direct correlation to terminal markets—a rather unusual circumstance that evidences the lack of supply,” Stein said. This situation should continue until the price of copper rises significantly.
Aluminum scrap is similarly in short supply, creating strong competition among consumers. This imbalance could be more long-term. As Stein explained, “increased use of aluminum in automobiles will result in demands for scrap that will outstrip supply, and secondary smelters will pursue those qualities of scrap that, in recent years, have been typically used by the primary mills.” Plus, there’s less obsolete aluminum scrap coming available as well as lower recovery of aluminum from auto shredder residue due to cutbacks in shredding operations, he noted. Shredder cutbacks combined with strong offshore demand have also created a shortage of zinc scrap in the United States, Stein said, stating that “the market for the end products is strong, and scrap supply can’t keep up with demand.”
Lead scrap, meanwhile, has shifted from plentiful supply in the winter to shortage, with “prices for all grades of lead scrap higher in relation to terminal market prices,” Stein said, noting that “this situation is viewed by some as seasonal.”
In Asia and the Pacific Rim, most countries are “rebounding with stable currencies, stronger industrial activity, and positive growth rates,” which is leading to stronger nonferrous scrap demand, noted Kumar Radhakrishnan of Simsmetal Ltd. (Sydney, Australia).
Scrap supplies have been tight due to the strong domestic economies as well as lower scrap exports from Russia thanks to its new export duties. Add to that the rise in LME nonferrous metal prices and “nonferrous scrap suppliers can expect reasonable improvement in prices and discounts during the next six months,” Radhakrishnan said.
The most notable recovery is occurring in Korea, whose economy is expected to grow 3.5 percent this year. It has had strong demand for all grades of aluminum, brass, and copper scrap, he reported. Secondary aluminum smelters in Taiwan, meanwhile, have been hungry for aluminum scrap, paying record prices in the second quarter.
Australia and Southeast Asian countries face lower domestic scrap generation but rising demand, forcing them to resort to imports to supplement the shortage, said Radhakrishnan. This supply-demand imbalance could continue for the next six months.
Market conditions aren’t as encouraging in Japan and China. The main bright spot in Japan is its consistent demand for high-grade copper scrap. And though China needs many grades of copper, brass, and aluminum scrap, business there “will be constrained in the near term due to inadequate money supply and restrictions in foreign currency transactions,” Radhakrishnan said.
In Europe, most countries are seeing a revival in demand—both domestically and from Southeast Asia—and a tightness in scrap supply. Prices have made profitability difficult, though there has been some improvement. Two bright spots are improving LME nonferrous prices and the aforementioned potential for less Russian scrap in the market.
Unfortunately, the United Kingdom hasn’t fared as well as its continental European counterparts, in part due to its relatively high interest rates and strong pound, which “greatly affect our ability to export our products,” said Robert Voss of Voss International Ltd. (Harrow, Middlesex, England). Both scrap generation and collection have been greatly reduced due to recessionary conditions in the United Kingdom, which have pushed a handful of nonferrous scrap consumers out of business. While higher LME nonferrous metal prices have drawn more material into the market and margins have slightly increased, “there are still too many merchants, traders, and consumers chasing too small a quantity of scrap in the U.K.,” Voss said.
Is the Worst Over for Ferrous?
One hot topic at the ferrous division meeting was Russia’s new duties on scrap exports, which will “result in significant changes in the scrap market,” said Igor Kouzmine of MAIR (Moscow). In 1998, Russia exported about 7.2 million mt of ferrous scrap, with the Ukraine adding 2.7 million mt and Belorussia shipping 200,000 mt for a regional total of about 9 million mt.
This year, the duties will cut those exports in half and cause scrap collections in those countries to decline 20 to 25 percent, Kouzmine said.
That was good news for ferrous processors in other countries, who expect the removal of Russian scrap from the market to tighten supply and, hence, boost prices.
There was other good news coming from Southeast Asia. The renewed demand by Southeast Asian mills signifies that “the worst is over” and that “the region will start the long climb back to prosperity” in fiscal 2000, said Ferrous Division President John Crabb of Simsmetal Ltd. (Sydney, Australia). Currencies have stabilized in the region, bank lending to industry has improved, and credit ratings have been positively revised. The result has been improvement in demand and prices for ferrous scrap, he said.
This demand seems to be based on sound market fundamentals such as “the commissioning of new capacity, tightness in regional domestic scrap supply—Japan excluded—and most importantly, geographical diversity in demand,” he noted. In the second quarter, Malaysia, Indonesia, Thailand, Singapore, China, and India purchased scrap cargoes at prices from $105 to $109 per mt.
Some concerns remain in the Southeast Asian market, however. For one, there are abundant supplies of HBI, which has been selling at substantial discounts to ferrous scrap, Crabb said. In addition, Japan has cut its crude steel production and, as a result, is expected to export more ferrous scrap—up to 3 million to 3.5 million mt this year—which “will affect both prices and demand, particularly in the Taiwan and Korean markets,” he asserted.
The U.S. market, meanwhile, has also been looking up, said Ed Hollander of Hollander Metals Inc. (Glenview, Ill.). Imports of hot-rolled steel have been declining and mills are running at about 80-percent capacity, which is “better than expected.” Scrap prices have also been trending upward for almost all grades, with growth in demand all over the country, Hollander said. There’s also been revived demand for pig iron, whose prices have risen $20 since earlier this year.
In the export market, Korea, Taiwan, and other Southeast Asian consumers are showing much more interest in U.S. scrap, but domestic processors are reluctant to sell, Hollander said.
Though imports of long products are still worrisome and labor strikes are possible in the auto industry, ferrous processors can generally expect “a better road in the next few months,” he said, adding the caveat that “we still have a very long way to go to catch up with numbers of more than a year ago.” In time, however, the market will return “very nicely.”
Stainless Looks to Southeast Asia
The U.S. stainless scrap market is a “complete paradox,” with wholesale scrap firms grappling with selling prices that are too high to make any margin and buying prices that are too high to attract scrap, said new BIR President Barry Hunter in his last meeting as chairman of the stainless steel and special alloys committee.
One positive development is the U.S. government support for anti-dumping suits filed by U.S. stainless producers to combat the flood of foreign stainless entering the United States. Thanks to these suits, U.S. mills “should be looking to increase production,” which could mean they’ll “require significantly more amounts of purchased scrap compared to the current situation,” Hunter said.
However, battle lines will be drawn between scrap suppliers and mill buyers over pricing, he said. Scrap suppliers could hold material for higher LME nickel prices or in hopes of changing mill buying patterns; or mill buyers could replace scrap with nickel and ferrochrome or change their buying structures to accommodate dealer supplies. These scenarios “will tend to deteriorate relationships,” Hunter said.
In the U.S. export market, Korea and Taiwan purchased almost 40 percent of all U.S. exports of stainless scrap in 1998, with Spain accounting for about 30 percent, he reported. Thus far in 1999, Korea and Taiwan are buying about 65 percent of U.S. stainless scrap exports, while Spain’s share has declined to about 20 percent.
For the remainder of 1999, anticipated increases in U.S. stainless production and ongoing export interest could mean that demand for U.S. stainless scrap “will be highly competitive, giving cause for some optimism,” Hunter said. For European stainless and special alloy producers, 1998 was a year to forget, said Ruurd Werner of ERG Edelstahl Recycling GmbH (Offenbach, Germany). Though demand was satisfactory, the industry suffered from declining nickel prices on the LME. Another problem was the shortage of stainless and special alloy scrap in the second half of the year.
This year, European stainless and special alloy mills are expected to produce 3 to 5 percent more than last year, Werner said. The supply forecast for primary nickel ranges from a slight deficit to a surplus of 12,000 mt, with prices likely to decline in the summer and rebound in the final quarter, he said.
The stainless markets in Korea and Taiwan have been improving, with the countries expecting to produce 1.2 million mt and more than 1 million mt, respectively, in 1999, reported Toru Nakata and Hiro Okuno of Hanwa Co. Ltd. (Tokyo). Korea expects to aggressively import stainless steel scrap from the United States, Japan, Australia, and Southeast Asia this year. In 1998, it consumed 450,000 mt of austenitic stainless scrap, with exports accounting for 250,000 mt of that total, according to a report by Mitsui & Co. Ltd. (Tokyo). Taiwan’s situation is similar to Korea’s—it plans to “keep purchasing constantly from the same overseas suppliers as the Korean stainless mills” and at almost the same price level, said Nakata and Okuno.
In contrast, times continue to be tough for Japanese stainless recyclers and producers. Japan’s ailing economy continues to depress stainless production, prompting mills to restrict their scrap imports, increase their dependence on domestic scrap, and boost their scrap exports. In 1998, Japanese stainless producers consumed 900,000 mt of austenitic stainless scrap, with imported scrap accounting for 150,000 mt of that total—about 70 percent less than its 1997 scrap imports, Mitsui reported. “We can see a severe battle among mills of Japan, Korea, and Taiwan in buying scrap and selling finished products in the market,” said Nakata and Okuno.
The ferrotitanium and titanium scrap markets, meanwhile, have shifted from the weak demand, oversupply, and declining prices seen in late 1998 to tight supply and strengthening prices in 1999, reported Robert Elliott of Global Titanium Inc. (Detroit). The titanium scrap supply tightened due to the reduced scrap generation by the aerospace and golf club industries, as well as a cutback of material from Russia because of its new duty on scrap exports. As a result, “the prices of both titanium scrap and 70-percent ferrotitanium are expected to increase in the coming months, provided demand for 70-percent ferrotitanium remains at present levels,” Elliott said.
Paper Gains Momentum
The U.S. scrap paper market is showing positive momentum in both domestic and export demand, spurring “cautious optimism that we are now rebounding into improving demand” that could continue to strengthen into the fourth quarter, noted Steve Vento of Recycled Fibers International (Sunrise, Fla.).
U.S. exports of scrap paper rose in 1998 to 8.1 million tons compared with 7.5 million tons in 1997—up 8 percent. And the upward trend is continuing in 1999, with exports through February totaling 1.3 million tons, 11.3 percent more than the first two months of 1998, Vento reported.
Prices have increased for most grades in both the domestic and Asian markets, he said, noting that there has even been renewed interest from mills in Central and South America.
In the OCC market, generation has been slow, domestic mill inventories are low, and “it has been difficult for them to build inventory with the export demand continuing to improve,” Vento said.
ONP continues to move well at firm prices despite significant downtime at U.S. and Canadian newsprint mills. Slower generation and export orders have helped keep ONP grades in balance, he noted. Wood-free deinking grades continue to sell well, with no excess tonnage available, while pulp subs “continue to gain strength, especially with the improving prime pulp market,” Vento said.
Mixed paper continues to strengthen domestically, driven by increased orders from roofing mills, which are benefiting from the continuing strength in new housing construction, he said.
Turning to Europe, in 1998 Western European mills produced about 81.2 million tons of paper and paperboard, an increase of 2.2 percent over 1997, said Carlos Reinoso of the Confederation of European Paper Industries (Brussels). On the recycling side, Western European countries collected 37.4 million mt of recovered paper for a rate of 50.3 percent, and they consumed about 36.5 million mt for a recycling rate of 49.2 percent, a gain of 6.1 percent compared with 1997, Reinoso reported.
Germany was the recovery leader in Western Europe, collecting 11.9 million mt and recycling 9.9 million mt, exporting the remainder, he said. The United Kingdom and France ranked second and third in collection at 5 million and 4.6 million mt, respectively, though France had a higher recycling tonnage at 4.9 million mt compared with the United Kingdom’s 4.7 million mt, Reinoso noted.
The overall European scrap paper market has improved since late 1998, with both domestic and export demand increasing, especially to the Far East. There’s the potential for tightness, even shortages, in some scrap grades, all of which is helping push prices higher.
In the United Kingdom, both intake and usage of scrap paper were down in the first three months, but prices have been rising, reported Paper Division President Gerry West of Severnside Waste Paper Ltd. (Whitchurch, Cardiff, Wales). Exports have been strong, reaching 200,000 mt in the first four months (400,000 to 450,000 mt is normal for an entire year). “Despite increased sea freight costs, flows of tonnage to Asia and Indian markets continue at a high level and have had the effect of clearing stocks held in merchants’ yards,” he said. “As a result, mixed paper and KLS grades are in short supply and any upturn in domestic paper production could result in material shortages.”
Demand is also strengthening for both colored and white wood-free grades, “perhaps linked to the growing strength in pulp prices,” West said.
On the downside, U.K. paper production declined 2.5 percent in the first three months, downtime continues to be common in the paperboard sector, there have been several U.K. mill closures, and the strength of the pound makes the United Kingdom an attractive market for other European suppliers, West noted. •
Hunter Elected BIR President
On May 25, the BIR elected Barry Hunter of Keywell L.L.C. (Elizabeth, N.J.) as its new president, succeeding two-term leader Anthony P. Bird.
“The honor, position, and responsibility that has been bestowed upon me here today is not and will not be taken lightly,” Hunter said in his acceptance speech at the general assembly meeting. “Our BIR has been provided with years of magnificent leadership, as has been exemplified by Tony Bird. I only hope I am worthy of continuing this remarkable tradition. And I can assure you I will make my very best effort to do so.”
Hunter began attending BIR meetings in 1979 at the group’s Chicago convention, where he was appointed chairman of its new stainless steel and special alloys committee, a position he held for 20 years—until his election as BIR president. In addition to serving continuously on the BIR’s advisory council, Hunter was elected a vice president in 1988 and a lifelong ambassador at large in 1998.
Hunter will initially serve a two-year term, with the potential to be elected to another two-year term at the BIR’s spring convention in 2001. (For more on Barry Hunter, see “A Man of the World” on pages 97-101.)
In Rome, the BIR also elected Björn Voigt of Thyssen Sonnenberg Metallrecycling GmbH (Duisburg, Germany) as its new treasurer, replacing long-time treasurer Raymond George, who retired from the post.
Is the Nonferrous Scrap Supply Dwindling?
Offering a big picture view of the nonferrous scrap market, Nonferrous Division President Larry Sax of Easco Aluminum (Akron, Ohio), an aluminum product producer, noted that “the longer-term demand for nonferrous scrap is growing.”
But will supply be able to keep up? The quantity of production scrap has been drastically reduced because of new computerized machinery with multi-dies, close tolerance stamping, and products made from narrower-gauge and thinner-width metal, Sax said. Less obsolete scrap could be available as well if aluminum, copper, and other nonferrous metals lose market share to other materials.
The result could be greater competition among consumers for the limited scrap supplies. “Competition for material has increased the recovered value of the scrap metal and, in some cases, made it higher than primary metal,” Sax said. “The consumer who has changed its process to melt only scrap is now at a disadvantage because the material available is less than their original calculations.” While the short supply of nonferrous scrap could be partially corrected by higher prices, there could be a long-term shortage in the nonferrous scrap mine above ground, he concluded.
The Electric Furnace Era
The production of steel by electric-arc furnaces is evolving and increasing in virtually every country, noted Ruggero Brunori of minimill Ferriera Valsabbia SpA (Odolo, Italy). While that trend means greater demand for ferrous scrap, it could also lead to fewer high-volume transactions of steel scrap between countries, as each could decide to consume its own scrap rather than export it, he said.
In 1998, European steelmakers consumed about 76.4 million mt of ferrous scrap, importing 20.8 million mt and exporting 19.6 million mt, Brunori reported. Germany was the largest consuming country in Europe, using 20.3 million mt of ferrous scrap, importing 1.3 million mt and exporting 6.7 million mt. Italy was the second-largest consumer at 15.9 million mt, importing 4.9 million mt and exporting none. France ranked third with consumption of 9.8 million mt, imports of 1.3 million mt, and exports of 3 million mt, he said.
As electric furnaces proliferate, scrap processors will continue to play an essential role in the market, Brunori said. In particular, the new, sophisticated electric furnaces need scrap that’s well-prepared, clean, with a given density and weight. Scrap that’s improperly prepared or low in quality can have negative repercussions for steelmakers, including greater pollution of their emissions systems, breakage of electrodes, downtime in production, serious technical problems in their steel, and more, Brunori said.
A Stainless Scrap Warning
The price and quality of stainless steel scrap will be deciding factors in the future growth of stainless steel production and consumption around the world, asserted Gaetano Pierangelini of Acciai Speciali Terni SpA (Terni, Italy), an Italian stainless mill.
In the next decade, stainless production is conservatively expected to grow 4.5 percent a year. Current prices are lower than those of 20 years ago in nominal terms and significantly lower in real terms. Thus, “stainless steel is and will be an excellent commodity with respect to its natural alternatives,” he noted.
To succeed in the competitive stainless market, producers are continually cutting costs, investing in research and development on new casting technologies, and upgrading their plants to meet ever-higher demands for better surface quality and mechanical properties in their products.
Another critical concern is having access to adequate raw materials—namely nickel, ferrochrome, and scrap—at reasonable prices. The biggest question mark is scrap, which has traditionally provided 45 to 50 percent of the nickel that goes into austenitic stainless steel. On the positive side, more obsolete scrap is expected to become available. As a result, “we should expect a relatively steady scrap market”—provided scrap prices are based on correct replacement values, taking into account the advantages and disadvantages of using scrap rather than primary nickel, Pierangelini said.
Unfortunately, the reality now is that scrap processors “are fighting a fierce price war to purchase raw materials, and they may even spend more money than what end-users are ready to pay,” he stated. In short, “consumers are made to pay the price of private wars between scrap dealers.” If this trend continues, producers may be forced to “reduce the percentage of scrap in the charge, introduce stricter controls and furnace yield measurements, cut the number of suppliers, and so on,” Pierangelini warned.
With improving global scrap markets and its newly elected officers, the BIR had much to celebrate at its spring convention in Rome.