JULY/AUGUST 2007
Scrap markets around the world have enjoyed almost mythical success in recent years, with more good fortune to come, speakers at BIR’s spring convention in Athens reported.
By Robert J. Garino and Kent Kiser
Greece and its capital city of Athens are steeped in history and mythology, making them the perfect setting for the spring convention of the Bureau of International Recycling (Brussels). The event made BIR history by setting an attendance record of 1,061 delegates. It also took place against the backdrop of historically high commodity prices that have approached near-mythological proportions in recent years. With the gods smiling on the scrap markets these days, there was little room for complaint at the BIR commodity division meetings, with most speakers predicting continued good times ahead for ferrous, nonferrous, stainless, and paper.
A “Brief Stutter” on the Way Up
Experts predict global crude steel production to increase about 6 percent this year, to 1.18 billion mt, which is 65 million mt more than 2006, said Christian Rubach of Interseroh (Cologne, Germany), ferrous division president, citing the latest data from the International Iron and Steel Institute (Brussels). With world production up more than 10 percent in the first quarter this year, however, IISI’s forecast could be “on the low end,” he stated.
Next year—2008—also looks promising, with IISI forecasting a year-on-year gain of 6 percent, to 1.25 billion mt, Rubach reported. China is expected to continue driving the market, with finished steel demand expected to reach 443 million mt, accounting for 35 percent of the world total.
Overall, Rubach said, “all signs indicate that the growth in steel demand will continue.” That factor, plus increases in electric-arc furnace capacity around the globe, mean that “the forecast for scrap demand seems to be positive.” That said, Rubach advised scrap traders to beware of possible threats to the global market, such as potential overheating in the Chinese economy, weakness in the U.S. economy, and a further weakening of the U.S. dollar.
The European Union’s steel and ferrous scrap markets certainly reflect the burgeoning global picture. In 2006, the EU 25 countries produced a record 198.4 million mt of steel, up 6 percent from 2005, while consuming approximately 107 million mt of ferrous scrap, giving scrap a 54-percent share in the melt, reported Anton van Genuchten of TSR GmbH & Co. (Bottrop, Germany). Germany remained the largest EU steelmaker by far, producing 47.2 million mt in 2006, followed by Italy, 31.6 million mt; France, 19.9 million mt; and Spain, 18.3 million mt.
EU scrap exports also set a record in 2006, increasing 9 percent year-on-year, to about 10 million mt, van Genuchten said. Turkey, he noted, was the biggest buyer of EU ferrous scrap, purchasing more than 4.8 million mt, with the United States second at 920,000 mt and China third at 469,000 mt.
At the same time, the EU’s imports of ferrous scrap declined almost 2 percent, to 7.3 million mt, making the EU a net scrap exporter by 2.8 million mt in 2006, van Genuchten said. Russia was the largest supplier of ferrous scrap to EU mills, though its 3.2 million mt was a “strong decrease” of almost 24 percent compared with 2005. Van Genuchten attributed this decline to stronger scrap demand by Russian steelmakers, which kept more ferrous scrap within Russia.
Confirming that trend, Denis Ilatovsky of Mair Joint Stock Co. (Moscow) reported that ferrous scrap consumption in Russia rose 25 percent in the first four months of 2007, boosted by the addition of 12 million to 15 million mt of EAF production capacity. To meet this demand, domestic scrap collections increased 20 percent compared with the first four months of last year, thanks in part to relatively mild winter weather, he said. Though Russia increased its ferrous scrap exports slightly in recent months, that trend is unlikely to continue, Ilatovsky noted.
In the United States, steel industry conditions “look favorable,” with domestic mills producing more than 2 million net tons per week as of May, said Jeremy Sutcliffe of Sims Group (North Sydney, Australia). “Producer margins are very good,” he said, “so we do not expect any production cutbacks for the months to come unless driven by inventory adjustment or typical summer maintenance and electricity curtailments.”
As for scrap, the U.S. market experienced a major price correction in May for prime grades. “Domestic mills tried to follow this lead with similar price reductions for dealer-supplied grades but had only limited success, and prices soon started to rebound,” Sutcliffe said. With steel prices and volumes likely to be “favorable for many foreseeable months,” he predicted, scrap prices will soon stabilize in the United States and abroad based on what he termed the “reality that the world may consume up to as much as 20 million mt more purchased scrap this year than last.” Given that reality, Sutcliffe advised scrap buyers to view the recent “brief stutter” in scrap prices as a “buying opportunity that should be enjoyed before sentiment and prices change once more.”
From “Dull and Dead” to Lively Commodities
In his final meeting as president of BIR’s nonferrous division, Marc Natan of Ecore Groupe (Rocquancourt, France) reviewed how far the world nonferrous metal markets had come since he assumed office in October 2001. At that time, the markets were “dull and dead,” he said. From January through October that year, nonferrous metal prices declined across the board, with aluminum down 18 percent; copper, 23 percent; nickel, 24 percent; tin, 28 percent; and zinc, 25 percent. In addition, LME stocks were growing, further depressing market prices.
Since then, all nonferrous metals have skyrocketed, with many touching historic price highs. Copper, for instance, was $1,349 a mt in October 2001, but current optimistic forecasts say it could reach $10,000 a mt. Though all nonferrous processors have reaped rewards from these market gains, Natan cautioned them to “keep in mind that the cycle of prices will change sooner or later.”
Reviewing the recent changes in the world nonferrous market, Ildar Neverov of ScrapMarket Ltd. (Moscow) reported that nonferrous demand in Germany is benefiting from higher production of consumer and capital-intensive goods. Scrap processors are reluctant to build their stocks, however, in part due to the high purchasing costs.
Russian processors can’t export material due to high customs duties, which are 50 percent for copper and aluminum and 30 percent for nickel, lead, and zinc, Neverov said. The Urals region has shown strong demand for copper scrap, and solid Russian demand overall could eventually require scrap imports, he said. If so, Russia would need to clarify the value-added tax issue and eliminate its 5-percent duty on scrap imports, he added.
The Chinese copper scrap market saw prices rise significantly recently along with surging LME levels, and aluminum prices held steady despite an “indisputable increase” in the supply of aluminum ingots, Neverov noted. With the market entering its peak consumption period, he expects aluminum prices to remain firm. In the stainless sector, China’s domestic prices are a good bargain, even though nickel prices remain high.
In India, copper prices recorded “handsome gains” on the back of rising LME values, though the higher prices prompted some traders to unload holdings, which began to put downward pressure on the market, Neverov reported. Zinc prices have declined marginally as additional supply led to growing stocks in the Indian market. In the aluminum market, major Indian companies are seeking foreign investment in production and international mining.
Nordic countries are posting solid economic numbers, with some analysts even using the word “overheating” to describe their economies. The scrap industry in the region is seeing historic demand, with all forms of high-grade material selling quickly, Neverov said. Though domestic consumers are well-supplied, the region is exporting “quite a large amount” of scrap thanks to overseas demand and technical problems at the major brass consumer in Sweden.
Italy, meanwhile, is showing “very weak” demand for copper, brass, and nickel-alloyed products, with consumers working down their existing stocks and declining to purchase anything on a spot basis because of a shortage of orders, Neverov said. The Italian secondary aluminum market is hampered by low demand and a “huge availability of scrap at very low prices,” he observed. Smelters also are working down their inventories before making new purchases. In contrast, nickel, lead, and zinc have good scrap availability and satisfactory consumption in Italy.
Summing up the U.S. nonferrous market, Andy Wahl of Newell Recycling (East Point, Ga.) noted that the secondary aluminum ingot business continues to struggle due to weak demand from the automotive sector. In the nickel scrap sector, China has shown interest in recent months in special grades of high-temp alloys, and India has stepped into this market as well. The U.S. lead market has seen stronger exports of lead-acid batteries, primarily because domestic lead smelters have resisted any price increases, Wahl said. In addition, the U.S. copper market has offered “pretty good” spreads, as the few U.S. copper scrap consumers seek to replenish their depleted scrap inventories.
Stainless Faces Substitution Threat
World stainless production reached 28.4 million mt last year, an increase of 11.7 percent over 2005, reported Michael Wright of ELG Haniel Metals (Sheffield, England), chair of the stainless steel and special alloys committee. Examining the principal European stainless-producing countries, he noted that production in Belgium and France—which are dominated by ArcelorMittal—increased almost 19 percent in 2006. In Spain, main producer Acerinox turned out almost 12 percent more stainless last year, while Germany and Italy posted a combined stainless production increase of almost 11 percent. In addition, Finland, Sweden, and the United Kingdom—where Outokumpu dominates production—generated about 7 percent more stainless in 2006 than in the previous year, he reported.
These positive trends have not continued in 2007, however, with many mills scaling back their output as well as their raw material requirements, Wright said. As a result, the European market looks “difficult” through the third quarter, he said, but he noted hopes that “production will increase back to normal levels for the fourth quarter.”
In 2007, global stainless production could exceed 31 million mt, which would represent a 9.6-percent increase from 2006, according to a report by Heinz Pariser of HHP Alloy Metals & Steel Market Research and Publications (Xanten, Germany), which Wright presented at the division meeting. Much of the production growth, however, is in 200-series low-nickel, chrome-manganese grades and ferritic grades at the expense of the higher nickel-containing austenitic grades. The high nickel prices in recent years have prompted stainless users to increasingly seek substitutes for the traditional 300-series austenitic grades.
On the scrap side, high nickel prices have increased the availability of stainless scrap on the market. In 2006, the global stainless scrap supply was 8.4 million mt, up 11 percent from 2005. This year, scrap availability is projected to reach 9.7 million mt, which would be a 15.5-percent jump from 2006, according to Pariser’s research. In keeping with these increases, the nickel units supplied from external scrap into stainless production rose from 611,000 mt in 2005 to 691,000 mt in 2006, with expectations to reach 776,000 mt this year. Overall, the use of secondary nickel derived from scrap has increased almost 42 percent since 2003, a much faster growth rate than that of primary nickel, which has increased only 14 percent since 2003. What’s more, the stainless steel scrap market “will continue to contribute additional nickel units of approximately 80,000 mt per year, or a growth of 8 [percent] to 9 percent per annum,” Pariser reported.
On the primary side, consumption of nickel is forecast to total 1.4 million mt, up a “mere” 1.4 percent from 2006, when the market ended with a supply shortfall of 37,000 mt, Pariser noted. That deficit could be reversed in 2007, ending with an oversupply of 64,000 mt, he said.
The U.S. stainless market reflected the larger trends—especially substitution—in 2006, said Barry Hunter of Hunter Alloys (Boonton, N.J.). “Our mills and their customers are moving away from the standard grades,” he noted, “and moving toward—and successfully marketing—more and more substitute 301, 201, duplex, and ferritic grades.” In his view, going forward, domestic production of austenitic grades could decline 10 percent to 15 percent in some cases, mostly due to high nickel prices.
This development might be nothing more than a “short-term correction period,” however, and not necessarily a negative for the scrap industry in the longer term, Hunter said. Stainless scrap suppliers will always have fresh opportunities to assist in product development, which could lead to expanding volumes and increased profitability. Scrap processors may even one day “get paid for the manganese content in our scrap,” he speculated.
In the export market, U.S. sellers shipped about 260,000 mt of stainless scrap in the first quarter of 2007, up almost 60 percent from the same period last year, Hunter said. Notably, Asia’s share of the total declined from about 70 percent in 2006 to 52 percent this year, with China’s share alone falling from 61 percent to 36 percent. In contrast, U.S. stainless scrap exports to Europe basically doubled in the first quarter compared with last year’s first quarter, with Finland accounting for about 30 percent of the tonnage—down from more than 90 percent last year—and Spain claiming 60 percent of the first-quarter total after purchasing no U.S. material in the same period in 2006.
For the remainder of this year, Hunter predicted “a reduced demand for scrap within the U.S. but an increased emphasis on the quality of the material to be supplied.” He expressed a more bullish view for the future given ThyssenKrupp’s plans to build a new stainless and carbon steel mill in Mount Vernon, Ala. This facility will forever alter the logistics and flow of scrap in the United States when it starts operating in about three years, Hunter said.
Asian Demand Defines Paper
Global production of paper and paperboard reached 367 million mt in 2005, up 2 percent from the previous year, reported Giampiero Magnaghi of Union Maceri (Rome) at the paper division meeting. The United States claimed first place, producing 82.6 million mt, followed by China, 56 million mt; Japan, about 31 million mt; Germany, 21.6 million mt; and Canada, 19.5 million mt.
Out of that 367 million mt of global production, processors recovered about 184 million mt—or 50 percent—of the fiber, Magnaghi said. The nations with the highest recovered tonnage in 2005 included the United States, which recovered about 47 million mt; Japan, 22.3 million mt; China, 18 million mt; Germany, 14.4 million mt; and the United Kingdom, almost 8 million mt, he said.
Recovered paper collections balanced global scrap consumption of about 185 million mt, Magnaghi said. At 35 million mt, China was the largest consumer of scrap paper in 2005, followed closely by the United States, with about 33 million mt. China was also the largest importer of scrap paper in 2005, taking in 17 million mt, he noted, with Indonesia and Canada trailing far behind at 2.5 million mt and 2.2 million mt, respectively.
Global consumption of recovered paper is expected to increase 33 percent between 2005 and 2012, while Asia’s scrap demand is forecast to grow 62 percent in that period, Magnaghi said. Where will processors find enough fiber to meet this burgeoning demand? In his view, there are few untapped sources except the municipal waste stream.
Taking a closer look at the Asian market, Ranjit Baxi of J&H Sales International (London) said Asia’s demand for recovered fiber continues to grow in 2007, driving many countries to increase their domestic collections to become suppliers to Asian mills. This is stepping up competition for established scrap paper exporters such as Europe and the United States. This trend also is leading to “continual volatility in prices,” he said.
China continues to dominate the Asian paper market. In the first quarter of 2007, China imported 5.96 million mt of scrap paper, which equates to an annualized total of 23.8 million mt in 2007—or roughly 21 percent higher than its 19.6 million mt of scrap paper imports in 2006, Baxi said. The United States shipped the greatest tonnage to China in the first quarter—2.66 million mt—followed by Europe, 1.93 million mt, and Japan, 803,428 mt, with other countries making up the remainder. Some of the other countries—especially South Korea and Taiwan—increased their scrap paper exports significantly in the first quarter, becoming greater competitors to other paper-exporting countries.
Reviewing Europe’s scrap paper exports to China, Baxi noted that it shipped more paper in the first quarter of 2007 compared with that period in 2006—1.92 million mt versus 1.23 million mt—and, in turn, claimed a larger share of the total shipments to China in the quarter, rising from almost 26 percent in 2006 to more than 32 percent in 2007. Even though the leading European exporting nations of the United Kingdom, the Netherlands, and Germany shipped more paper to China in the first quarter of 2007 compared with 2006, their share of overall European exports declined as other countries—notably Belgium, Italy, France, Spain, and Norway—increased their shipments and market share.
Japan, the third-largest supplier of recovered fiber to China, ships 82 percent of its scrap paper to China, or about 3.2 million mt of its 3.9 million mt total, Baxi said. Of that total, OCC accounts for 1.67 million mt; OMG, 1.17 million mt; and ONP, 640,000 mt, he reported.
Price is a big reason why “more and more of the Asian countries are looking to export their surplus fiber to China,” Baxi said. For instance, when the domestic price for OCC was about $85 per mt in South Korea and $107 per mt in Japan, the price in China was $160 per mt, providing a strong incentive to sell fiber to China.
In the European market, paper processors enjoyed strong domestic and export demand for their commodities in 2006, with many countries seeing “some significant price progression” as domestic buyers increased their offers to prevent fiber from being exported, said Merja Helander of Paperinkeräys Oy (Helsinki, Finland).
Exports certainly define the market in the United Kingdom. Its domestic consumption of scrap paper declined about 8 percent in 2006, to 4.2 million mt, but its exports of recovered fiber jumped 20 percent, to almost 4 million mt. This year, the United Kingdom could export more fiber than it consumes, Helander said. By destination, UK processors ship 76 percent of their secondary fiber to Asia, with China claiming 50 percent of that share. The remaining 24 percent goes to European mills.
In contrast, Spain increased its domestic paper production capacity and, hence, its consumption of recovered fiber in 2006 to about 5.4 million mt, an increase of more than 16 percent compared with 2005, Helander reported. To feed this new production, Spain increased its collections of recovered fiber about 7 percent, to 4.6 million mt, but it still had to boost its imports 38 percent, to 1.1 million mt, while decreasing its exports of scrap paper 25 percent, to 382,650 mt.
Going forward, Helander said, the European scrap paper market will likely see low stocks, solid demand from domestic and export buyers, and seasonal decreases in collections in the summer, all of which could lead to a “rocketing of prices.” Of course, she added, that “remains to be seen.”
BIR Welcomes New President
BIR elected a new president at its Athens convention, naming Dominique Maguin to a two-year term. Maguin, president and CEO of Veolia Propreté France Recycling (Paris), has worked more than 30 years in the recycling industry and has served in leadership roles for many recycled-related professional organizations, including FEDEREC, the French recycling federation; ERPA, the European paper recycling federation; and BIR, as president of its paper division for seven years. Maguin also is an appointed member of France’s National Waste Council and Council of Commerce.
Maguin succeeds outgoing president Fernando Duranti of Leghe & Metalli International (Milan, Italy), who served two terms, or four years, in that post.
Greece Pursues Nonferrous Progress
Greece has a few metal consumers with a “big demand” for aluminum and copper scrap, including rolling mills, at least five billet producers, small foundries, and one or two secondary ingot producers, said Elias Sebos of Elval (Inofyta-Viotia, Greece). In 2006, Greece produced about 360,000 mt of aluminum semiproducts, 200,000 mt of aluminum rolled products, 160,000 mt of extruded aluminum products, and 155,000 mt of copper semiproducts.
Greece isn’t heavily industrialized, so its scrap volumes are relatively small, Sebos said. As a result, Greek consumers can’t meet their needs for certain grades from domestic supplies alone.
There are about 20 Greek scrap companies that handle “big volumes” (by Greek standards, he noted) and engage in export activities, with another 40 smaller firms that focus on local markets. In the past decade, Greek scrap operators have “tried to improve their organizations, modernize their operations, and open up to the international markets,” Sebos said. They still have work ahead of them to reach the level of international scrap companies in terms of volume, service, and quality.
On the positive side, the Greek government eliminated the value-added tax on scrap metal transactions in January 2007. But the government is implementing stricter EU regulations for environmental protection and “waste” control, which encompasses scrap. “This will have a great impact on the scrap market,” with only larger, competitive scrap operations surviving in the long run, Sebos said.
In the end, “old habits and business practices should not get in the way of progress,” Sebos stated. “Recycling is progress. I believe that all Greek scrap market participants are trying hard for better days.” •
Robert J. Garino is director of commodities for ISRI, and Kent Kiser is publisher and editor-in-chief of Scrap.