July/August 2005
After rocketing skyward in 2004, global scrap markets returned to earth in the first half of this year. Will they rebound or remain earthbound? Speakers at the recent BIR meeting in Spain wrestled with that question.
By Robert J. Garino and Kent Kiser
What goes up must come down—that’s the law of gravity as well as market dynamics, isn’t it?
As if to prove that saying, international scrap markets took a turn for the worse in the first half of this year. Though ferrous suffered the worst, nonferrous markets had their own problems, with weakening demand and growing supplies raising questions about supply-and-demand balances going forward.
This market shift was a sober reality check for attendees at the spring convention of the Bureau of International Recycling (BIR) (Brussels, Belgium), held in Barcelona in late May. There, many speakers spoke nostalgically of the fabulous 2004 market, almost eulogizing its demise and calling it a “very nice memory,” a “harvest year,” even the “best year ever.” Though 2005 won’t receive such fond dedications, some speakers at the BIR meeting predicted a bottoming out of the market and subsequent recovery later this year.
Despite the negative market developments, the BIR meeting also brought some good news. Specifically, the event attracted a record 900 delegates from 54 countries. Also, beautiful Barcelona gave attendees a sunny Mediterranean setting where they could forget their market worries—at least for a few days. Read on for highlights of the BIR convention’s commodity sessions.
Ferrous Falls Hard
The Barcelona convention officially kicked off with the ferrous division meeting, which confirmed the negative trends that have characterized the global steel market in recent months. While the overall tone was hardly encouraging for buyers or sellers, speakers did offer some optimism, asserting that the current market anxiety was “unlikely to last” and that prices could, in fact, bottom out this summer.
John Neu of Hugo Neu Global Trade L.L.C. (New York City) reported that prices for most U.S. domestic scrap grades were “down significantly” for reasons such as a weaker domestic steel market, adequate scrap inventories at mills, and “sufficient shipments against current May contracts.” Over the past six months, he noted, ferrous scrap prices dropped nearly $225 a gross ton, including more than $100 in the previous 60 days.
Offering some May price expectations, he saw No. 1 bundles/busheling at $210-$220 a ton, delivered; shredded at $205-$215 a ton; and No. 1 HMS at $190-$200 a ton, delivered, with June prices perhaps going lower.
Despite the depressing midyear picture, steel production trends in the United States and elsewhere continue to show expansion, Neu added. In many countries, he noted, steel output was higher in April than in March. In his view, raw material prices have declined in part due to buyers’ reluctance to price scrap in a falling market.
Though it’s difficult to pick market tops and bottoms, Neu maintained that “sooner or later” this weak market will reverse, likely resulting in an overreaction on the upside. These changes in fundamental and psychological factors, he concluded, will cause buyers to keep buying in anticipation of even higher prices. Sellers, meanwhile, may become less anxious to sell.
In the European Union, raw steel production in the 25 member countries reached 193.5 million mt, up 5.2 percent compared with 2003, while EU scrap consumption was 102.9 million mt, said Anton van Genuchten of TSR Recycling GmbH & Co. KG (Duisburg, Germany).
In addition, the EU’s scrap trade balance improved, posting a scrap export surplus of 1.3 million mt last year. Van Genuchten attributed this improvement largely to the expansion of the EU last year from 15 to 25 countries, now including Poland, the Czech Republic, and Hungary.
Looking ahead, the negative trends that have dominated sentiment in recent months—including what van Genuchten called “the current state of panic in the scrap market”—aren’t likely to last, he said. Though fundamentals could push June prices lower, prices should soon bottom out, he stated.
Turning to Russia, Denis Ilatovsky of Mair Joint Stock Co. (Moscow) noted that the seasonal increase in ferrous scrap collections in many regions had begun as late as mid-April this year due to a persistent covering of snow. Consequently, collection levels in May were expected to be 10 percent higher than in the same month last year, thus suggesting “stable market conditions.”
At the same time, he warned that the higher recovery was likely to lead to “an intensification of the competitive struggle in the scrap market,” along with a decrease in profitability among recyclers and a subsequent reduction in the number of market participants.
Adding to the ferrous discussion, Jeremy Sutcliffe of Sims Group Ltd. (North Sydney, Australia) asserted that this year’s price decreases are “no more dramatic than last year,” though he conceded that ferrous scrap prices could continue to slip as the market seeks out its resistance level. Nevertheless, Sutcliffe remained cautiously upbeat based on anticipated Asian steel activity in the second half of 2005.
In his view, the global steel market is “still pretty good,” with Chinese output up 24 percent year-on-year though its imports of ferrous scrap were lower by 21 percent. After dismissing recent offers for scrap as “silly prices,” he predicted firmer numbers in the coming months. As for finished steel, Sutcliffe noted that a key forward indicator will be the level of Chinese net imports of finished steel. On the plus side, lower ocean freight rates are a positive for scrap sellers, offsetting the stronger dollar, he pointed out. At the same time, scrap will remain a volatile commodity and the steel industry faces a “tough quarter ahead,” Sutcliffe concluded.
Has Nonferrous Already Peaked?
Speakers at the nonferrous division meeting offered words of caution and concern about the near-term outlook for several LME-traded base metals.
Nonferrous Division President Marc Natan of Malco S.A. (Le Pre Saint Gervais, France) opened the session with a review of current global economic conditions as well as a status report on China’s and India’s changing policies on scrap imports. Then he examined the nonferrous commodity markets, taking on copper first.
Supply tightness in copper sustained LME copper prices through the first third of 2005, Natan said, though he wondered how long this trend would continue, especially given that—in his view—consumers were finding it easy to secure concentrate, blister, cathode, and scrap. Copper, he asserted, may have already peaked for the year
in April when it briefly reached a three-month price of $3,335 a mt.
Aluminum may have also topped out, Natan speculated, following its run to $2,000 a mt on the LME in April. Still, the light metal may be going through an “overly severe” correction, he said, as buyers and sellers sort through conflicting supply-and-demand data.
As for zinc, near-term demand from the galvanizing sector hinted at supply tightness ahead when matched against near-term concentrate availability, Natan maintained. Regrettably, the same can’t be said for lead, he noted. LME lead prices, in contrast to zinc tags, look to be heading downward in the 2005-2008 period as end-use demand moderates. But Natan reminded attendees that hedge-fund activity is key to lead’s future price determination and direction.
Continuing the review of base metals, Kumar Radhakrishnan of Sims Group Ltd. (North Sydney, Australia) observed that “we may be facing an inevitable market correction.” As evidence, he pointed to the prolonged period of high energy prices; a slowdown in the major industrialized economies; worries of an overheated market; negative seasonal factors; a stronger U.S. dollar (which affects pricing and sentiment); and the uncertainty surrounding what he called “an imminent revaluation of the Chinese currency.”
Given those factors—and the fact that near-term copper prices are trending lower—refined supply continued to remain tight for both primary and secondary copper units, Radhakrishnan said. As a result, copper scrap was experiencing “robust” demand, while primary production was responding to the earlier higher prices with significant output expansions. Once current “refinery bottlenecks” are resolved, he suggested, the increase in cathode production may place pressure on both prices and premiums.
In contrast to copper, aluminum was facing deteriorating market conditions and, as such, its outlook “is much less optimistic,” Radhakrishnan said. Key market forces included excess primary production, high levels of visible stocks, falling demand for secondary ingot, and the current export duties from China. Scrap prices, he continued, have fallen in recent months and “are poised to fall further in the near future in most parts of the world.” In his view, most consuming markets are oversupplied, with a corresponding softening in demand from secondary smelters. European and North American scrap consumers, he stated, are expected to abstain from purchasing in the near term due to destocking of existing inventories as well as normal seasonal considerations.
The market for secondary aluminum in China also remained “poor,” Radhakrishnan added, as industry participants look to the government to eliminate the 5 percent export duty. This would give a boost to the local industry. Recently, he noted, the Chinese government said it would cancel the benefits enjoyed by toll processors of alumina to curb primary production and reduce exports that had reportedly reached record levels.
Going forward, China, India, and the Middle East will continue to experience high domestic growth and positive demand for commodities, Radhakrishnan summed up. In the coming months, though, the market will be “challenging” if a global slowdown sets in. Globalization, he said, has made nonferrous scrap markets heavily interdependent on worldwide trade and economic conditions.
Stainless Faces Confusing, Volatile Conditions
After asserting that current conditions in the U.S. stainless scrap market “are probably the most confusing that I have ever seen,” Barry Hunter of Hunter-Benmet Associates L.L.C. (New York City) offered a look at the three main players in the market—smaller scrap collectors, larger scrap wholesalers, and mills.
For scrap collectors, “the recent backwardation of the LME nickel price would definitely support prompt sales,” Hunter said, noting that “the scrap iron market appears to be heading nowhere and the light at the end of the tunnel may be an oncoming train.” As a result, he stated, “a regular spot selling program for this important supply group should continue, even as available quantities are reduced.”
Major scrap wholesalers are in a “much tougher position,” Hunter continued. These players constantly need scrap to meet their mill commitments, but they face a “substantial” LME nickel backwardation, limited—and expensive—supplies of quality prompt material as well as blending units, and hence little or no margin. “Positioning forward scrap at a logical price will continue to be very difficult for this group without accepting substantial risk,” he said. Thus, wholesalers will “continue to struggle to create margins while maintaining monthly deliveries of committed supplies in a highly competitive tight supply market.”
U.S. stainless mills also face many worrisome market factors, including “clear negatives” for the European economy, a reduction in U.S. car sales, “nonaggressive” Chinese buying, the potential for a stronger dollar, increasing interest rates, and “everything being written about metals,” Hunter said. All these factors would support “reduced buying and maintaining extremely tight inventory controls.” Going forward, he offered, consumers will likely “proceed cautiously both in quantities required on a monthly basis and prices they determine are right to purchase that quantity.”
In the export market, official figures report that 138,000 mt of U.S. stainless scrap was shipped in the first quarter, though Hunter maintained that those numbers are overstated. By his calculations, U.S. stainless scrap exports totaled 115,000 mt for the quarter. Asia was the largest buyer of U.S. stainless scrap, accounting for 83 percent of all first-quarter purchases. China bought half of the volume shipped to Asia, while South Korea and Taiwan each claimed 18 percent. Notably, India is “definitely a growing market,” importing about 10 percent of U.S. stainless scrap in the first quarter, while Finland remains the main European buyer for U.S. shippers, Hunter said.
Covering the European stainless market, Stainless & Special Alloys Committee Chairman Sandro Giuliani of Giuliani Metalli SAS (Milan, Italy) stressed four main points:
- Stainless production continues to grow in Europe and the world. In 2004, European production grew almost 7 percent, but “we can’t expect the same increase in 2005,” he said, predicting that this year’s production growth will be more like 3 to 5 percent.
- There has been significant volatility in nickel prices and ferrous scrap prices as well as “strong variations” in stainless steel scrap supplies. Those supplies, for instance, were “poor” at the end of 2004 but large in the first months of 2005.
- The market presented many risks and uncertainty in terms of weakness of the U.S. dollar, increases in oil prices, unpredictable nickel supplies, questionable scrap availability, and variations in demand, Giuliani said. European producers have also seen a weakening market and some erosion in prices this year. Plus, China’s efforts to cool its economic growth could cause “a decrease in exports of stainless steel products to China and an increase in imports,” he noted.
- There have been shifts in stainless production in Europe. France’s stainless production, for instance, has decreased about 16 percent, while Belgium, Finland, and the United Kingdom have each increased their production 20 to 22 percent. These and other production shifts have changed scrap flows between countries.
Despite these concerns, European stainless scrap processors still enjoyed a “favorable business climate” in the first quarter, though demand was mitigated somewhat by an adequate supply of scrap and by production shifts toward ferritic stainless grades. Even so, “prices remain at historically high levels, and 2005 should witness continuing growth in global demand, even if at lower rates,” Giuliani said.
In Russia, stainless scrap has continued to be exported thanks to “rather attractive” prices being offered by major consuming countries like Germany and Finland, noted Ildar Neverov of Torgmet Ltd. (Moscow). These exports are occurring even though Russia continues to impose a 15-percent duty on all exports of stainless scrap.
Domestic stainless scrap collections in Russia are expected to total 270,000 to 300,000 mt a year through 2010, Neverov reported. Notably, in the period from 1995-2001, scrap collection in Russia exceeded scrap generation, but in recent years collection corresponds to generation, he said. In his view, this could result in a deficit of scrap for domestic consumption going forward.
Russian stainless scrap processors face problems regarding Russian legislation and customs practices, which contain “discrepancies and contradictions that should be removed after thorough analysis by our state authorities,” Neverov said. Other challenges include “very complicated” licensing procedures, high transportation and energy costs, and outdated equipment.
Until April, the titanium scrap market had been “spectacular,” with the price of 90-6-4 ferro-quality scrap more than doubling and 90-6-4 revert scrap virtually tripling thanks to increased demand for titanium ingot and ferrotitanium, said Stuart Freilich of Universal Metal Corp. (Worcester, Mass.). In late April, however, some panicky traders—especially in Ukraine—began selling ferrotitanium at below-market values, driving the market down. These price changes prompted titanium ingotmakers to withdraw from the market even though the fundamentals haven’t changed and even though ferro-quality material can’t be used for ingot production in the first place, Freilich noted.
In contrast, demand for titanium mill products “continues to be strong with no end in sight,” and delivery schedules continue to lengthen to 50-plus weeks, he reported. Notably, he added, titanium shipments in 2004 were estimated to be 42 million pounds, with 2005 shipments expected to easily surpass 50 million pounds.
In sum, Freilich said, military needs as well as strong demand for passenger jets, helicopters, and widebody jets worldwide will “create a demand for high-temperature alloys, titanium alloys, and refractory metals through 2006-2007.”
Weaker Demand, Softer Prices Ahead for Paper?
Prior to the Chinese New Year in February, the export market for scrap paper was defined by “reasonable stability with high demand periods,” noted Ranjit Baxi of J&H Sales International Ltd. (London) at the paper division meeting. Since then, the market has been less stable for several reasons. For one, the U.S. dollar—the currency used for international scrap trades—has been generally weak, though it had begun to strengthen at the time of the BIR meeting. Second, there was considerable fluctuation in freight rates due to a fuel rate adjustment—called a bunker adjustment factor—caused by rising oil prices. Shipping lines also announced a rate increase that would take effect in June. Container availability and port congestion surcharges are two other problems. There has also been a continually changing demand cycle. “Currently we are going through a rather difficult economic period, with most countries revising their growth forecasts downward,” Baxi said. This shift will likely translate into weaker demand and softer prices for both secondary and finished paper.
Examining the all-important Chinese market, Baxi noted that China imported about 3.1 million mt of scrap paper in the first quarter of 2005. The leading suppliers were the United States at 1.3 million mt (43 percent), the European Union at 877,000 mt (28 percent), Japan at 547,000 mt (18 percent), and Hong Kong at 141,000 mt (5 percent), with the remainder filled by Canada, Australasia, and other nations.
Among the EU nations shipping to China, the leaders were the Netherlands at 248,000 mt (28 percent), the United Kingdom at 221,000 mt (25 percent), Germany at 145,000 mt (17 percent), Belgium at 92,000 (10 percent), France at 75,000 mt (9 percent), Spain at 36,000 mt (4 percent), and Italy at 34,000 mt (4 percent), Baxi reported.
Turning to India, Baxi noted that the country has about 600 paper mills, though the majority of them—66 percent (393 mills)—produce less than 10,000 mt a year. Another 32 percent (196 mills) only make up to 100,000 mt a year, and just 2 percent (11 mills) are of sufficient size to produce more than 100,000 mt a year. Together, India’s mills produce more than 5.3 million mt a year against paper consumption of 5.2 million mt. As a nation, India has per capita paper consumption of 5.2 kgs, though this amount is expected to double by 2010. By 2015, India’s paper demand is projected to be about 9.3 million mt, representing an annual growth rate of 6 percent.
More than 70 percent of India’s mills are dependent on imported scrap paper for their feedstock. Part of the reason is that India has a low domestic paper recovery rate of 20 percent. This recovered tonnage meets only 40 percent of the fiber needs of Indian mills, forcing them to import about 1.5 million mt of scrap paper. Given the expected growth in Indian paper production, it could import about 2 million mt of scrap paper by 2010, Baxi said.
In the United Kingdom, domestic consumption of scrap paper was 4.6 million mt in 2004, but the bigger news is that the country’s exports of recovered fiber reached a record 2.6 million mt, reported David Symmers of the Independent Waste Paper Processors Association (Daventry, England). China was the principal buyer at 720,000 mt, while European mill consumers purchased a combined 824,000 mt and non-EU countries bought about 1 million mt. Exports in 2005, he added, are continuing at “very good and probably record levels again.”
U.K. scrap paper exports are increasing, Symmers explained, due to “the environmental and political pressure to increase recycling in the U.K. without there being any corresponding increase in U.K. domestic papermaking capacity.” Greater recovery of household paper is a big factor behind the increasing domestic supplies. Much of this paper is collected with other recyclables, and this commingled material is being exported to countries such as India. Such shipments are creating some problems because they can’t be shipped as green-list material under international treaties.
Though U.K. scrap paper prices have been stable, operating costs have risen “steeply,” Symmers observed. Due to low landfill rates, U.K. paper packers have “little ability to increase margins by decreasing supply prices or imposing collection charges.” As a result, packers are finding it difficult to make money, and “there will probably be some turmoil in the U.K. market in the short to medium term,” he said.
In other EU markets, Germany seems to have reached a ceiling level in its collections of scrap paper, noted Hubert Neuhaus of KG Ludwig Melosch Vertriebs GmbH & Co. (Hamburg, Germany). On the positive side, German mills are expected to add production capacity that will increase their need for recovered fiber by 1 million mt. This additional consumption could increase Germany’s imports of secondary fiber and decrease its exports to Asia this year.
French mills, meanwhile, increased their consumption of scrap paper 3 percent in 2004 to about 6 million mt, but domestic collections grew at a higher rate of 6.5 percent, noted Igor Bilimoff of Soulier (La Plaine Saint Denis, France). This additional fiber made France a net exporter of scrap paper last year, despite the addition of 300,000 mt of new production capacity. This added capacity “had no effect at all, surprisingly enough,” Bilimoff said. “The market didn’t liven up, which is what we had all expected.” Given such dynamics, he stated, the market is “terribly difficult to understand and is basically quite stable.”
ISRI Leaders Attend BIR Convention
ISRI Chair Joel Denbo (left) and ReMA President Robin Wiener (center) visit with BIR Director General Francis Veys at the group’s Barcelona convention. At that event, which attracted a record 900 attendees from 54 countries, Denbo and Wiener represented ReMA at both private and public meetings. Wiener was invited to discuss important U.S. scrap-related issues at the meeting of BIR’s International Environment Council. She noted ISRI’s ongoing efforts to promote legislation regarding the recovery of automotive mercury switches, and she applauded the recently passed mercury switch removal law in Arkansas that includes Design for Recycling® provisions. Wiener also reviewed how ReMA is working with the Vehicle Recycling Partnership (of which ReMA is a member) on shredder fluff recycling and the problem of PCBs in automotive plastics. In addition, she mentioned the growing concerns about radio frequency identification (RFID) tags in the scrap stream.
Paper Recycling Grows in Spain
Since 2000, Spain’s consumption of scrap paper has increased 15.5 percent—from about 3.9 million mt to 4.5 million mt in 2004. In that same period, its recovery of scrap paper has grown more—18.3 percent—from 3.3 million mt to 3.9 million mt. As a result, Spain is getting closer to fully meeting its recovered fiber needs through its domestic supplies, noted Luis del Molino Garcia of REPACAR (Madrid), the Spanish association of paper recyclers.
For years, there was a consistent 20-percent gap between Spain’s consumption of scrap paper and its domestic collections. In 2004, however, that gap decreased to only about 12 percent and perhaps as low as 9 percent if all scrap paper stocks/inventories are counted, Molino noted. “That’s a huge change brought about by our country,” he said. “We’re getting close to full supply of our needs in Spain.”
The country’s collection efforts gave it a paper recovery rate of roughly 55 percent in 2004, a recycling rate of 62.2 percent, and a per capita recovery figure that has grown from 11.9 kg in 2000 to 16.4 kg in 2004. Higher domestic scrap supplies have brought about another trend—lower imports of recovered fiber and higher exports, especially to Asia. In 2004, for instance, Spain imported 822,000 mt of recovered fiber (down almost 10 percent) and exported about 275,000 mt (up 146 percent), Molino reported.
Spain intends to continue increasing its domestic recovery of scrap paper. While collections from industrial generators are excellent, there is a significant need to increase paper recovery from other sources such as retail stores, offices, schools, and homes, Molino said. Regrettably, he stated, some 2 million mt of paper from those sources is still being landfilled every year.
Going forward, more domestic scrap paper will be needed to meet planned expansions by Spanish paper mills. Over the next four years, for instance, the industry will need an additional 1.3 million mt of recovered fiber to feed increased production capacity, Molino said. To meet this demand, Spain will have to increase its recovery rate from 55 percent to 68 percent. “That would entail a considerable effort by the collection industry,” he stated.
Spanish scrap paper recyclers face several challenges, however. For one, prices for such grades as OCC and ONP have been extremely flat in recent years, though operating costs—for baling wire, energy, and labor—have risen. All the different levels of Spanish and European legislation can entail additional costs as well. “And we can’t pass that on to our customers,” Molino noted. These conditions have put the industry in a “slump” and driven recyclers’ profit margins “dangerously low.”
In the future, Spain’s paper recyclers must continue to innovate and improve productivity to be competitive, Molino said. Mergers in the industry, for example, could improve its productivity and competitiveness. Also, there is sophisticated optical technology available today for sorting paper, which could increase productivity and improve quality. As he noted, “Quality standards are becoming more and more exacting, and our customers are becoming far more demanding.” It also “won’t be long,” Molino said, “before our paper bales have barcoded labels as if they’re manufactured products,” which would be a good development since it would help establish scrap paper as a recycled product rather than a waste.
BIR Honors South African Recycler
Darren Pillai of Mama She’s Waste Recyclers (Gauteng, South Africa) received a BIR Gold Medal for outstanding promotion of recycling at the association’s convention in Barcelona. Pillai received the award for founding Mama She’s, an “exceptional initiative” that uses recycling as a means of enhancing social promotion and human dignity in South Africa, BIR said.
Mama She’s, which has also been recognized by the South African government, has 448 permanent employees and creates jobs for another 800 individuals, Pillai noted. The company recovers items such as plastics, corrugated, glass, and used beverage cans through a variety of operations, including landfills, retail buyback centers, and individual “reclaimers,” who collect material in company-owned carts.
Mama She’s also provides on-site waste management services—such as destruction of expired products and handling of general waste—and manages the waste generated at public events as well as some large shopping centers, casinos, restaurants, and the Johannesburg International Airport. In the future, Pillai said, the company plans to recover materials from additional landfills and take on much bigger projects and operations.
Mama She’s recycling services are beneficial on several levels, noted Pillai. For the firm’s employees, the recovery and sorting jobs are “an extremely stable source of income.” The positions, which are virtually all filled by women, put the workers “in control of their earnings and this means the employment creates empowerment, pride, and human dignity throughout the community.”
For South Africa, Mama She’s is helping to save landfill space by diverting recoverable material from disposal. As Pillai concluded, “We are cleaning the earth’s surface and at the same time we are minimizing the extensive use of water, natural resources, and energy that would normally be consumed during manufacturing.”
Tire Recycling Gains Traction in EU-15
The 15 principal EU countries have made significant progress in the recycling and reuse of scrap tires in the past decade, noted Tire Committee Chairman Barend Ten Bruggencate from the Netherlands. Those countries, for example, increased their tire recycling rate from just 6 percent in 1994 to 28 percent in 2003 and boosted the amount of used tires destined for energy recovery from 11 percent to 30 percent, he reported. This trend has reduced the landfilling of scrap tires from 62 percent in 1994 to 18 percent in 2003.
While the majority of EU-15 members have scrap tire recovery rates in excess of 78 percent, three countries—Greece, Ireland, and Spain—“still have problems,” with recovery rates of 28, 25, and 40 percent, respectively, said Ten Bruggencate. In addition, five of the 10 new EU member countries—Cyprus, the Czech Republic, Malta, the Slovak Republic, and Slovenia—were still landfilling all of their scrap tires as of 2003.
Robert J. Garino is director of commodities for ISRI, and Kent Kiser is publisher and editor-in-chief of Scrap.
After rocketing skyward in 2004, global scrap markets returned to earth in the first half of this year. Will they rebound or remain earthbound? Speakers at the recent BIR meeting in Spain wrestled with that question.