July/August 2004
With scrap markets taking a breather, recyclers at BIR’s spring convention focused on threats to the free-and-fair trade of scrap as well as China’s proposed supplier-registration system.
By Robert Garino
It was October 1988 when the Bureau of International Recycling (BIR) (Brussels, Belgium) last hosted its spring recycling convention in Berlin. While the spirit of glasnost was apparent then among attendees from the major eastern and western economies, slightly more than a year would pass before that divided city finally opened itself to unrestricted travel and the infamous Berlin Wall was taken down. By the end of 1990, as communism collapsed and the Cold War ended, Berlin’s eastern and western halves reunited, establishing it as the rightful capital of a unified Germany.
Much has changed—politically, economically, and socially—in the 16 years since BIR’s last Berlin convention. Even so, the issues that received the most attention back then—international trade and environmental restrictions—had a familiar ring at this year’s convention. At the 1988 event, BIR President Jake Farber of Alpert & Alpert Iron & Metal Inc. (Los Angeles) spoke of removing trade barriers so “we may all benefit from real freedom of movement for all types of recycled materials.” Other delegates at that meeting spoke of the growing pressures on recyclers to conform to new environmental regulations—regulations that, they said, failed to distinguish materials destined for disposal from scrap commodities destined for recycling and reuse.
While the industry has made progress on various trade and environmental issues since 1988, most BIR attendees would agree that some things are slow to change—especially when dealing with complex issues and government bureaucracy. One undeniable change, however, has been the emergence of China as a dominating commercial influence. Few, if any, suspected in 1988 that China would become the major consumer of raw materials in the world, not to mention a major global producer of many commodities. Given its current prominence in the world market, it’s not surprising that China was a major thread throughout many BIR sessions, as was the May 1 accession of 10 additional nations into the European Union.
At this year’s general assembly, current BIR President Fernando Duranti of Leghe & Metalli International (Milan)—echoing Jake Farber from 1988—stressed the importance of “free and fair trade” that’s unencumbered by arbitrary regulations. This subject was also discussed at length by BIR’s nonferrous division, which unanimously passed a “common position” on scrap trade that included this statement: “In recognition of the social, economic and environmental benefits of recycling, we denounce all attempts by governments, special interest groups or trade organizations to implement export controls for scrap materials. Furthermore, we call on importing nations to end import taxes, duties or subsidies that are detrimental to the free and fair trade of our material.”
The nonferrous division drafted this unified position in response to several national and international developments affecting scrap processors, brokers, and consumers, all of which threatened to disrupt the international trade of scrap commodities.
A particular concern at this year’s gathering was China’s proposed “supply enterprises” registration system that would apply to all shippers of scrap commodities to China. In short, China’s General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ) announced its plans last year to impose new rules on customs clearance of imported scrap, with scrap shippers able to submit registration applications after Jan. 1, 2004, and the new rules taking effect July 1, 2004. Any overseas supplier who fails to achieve the special registration with AQSIQ, among other requirements, would technically be banned from shipping scrap to China.
Both BIR and ReMA aggressively sought clarification of the registration requirements from AQSIQ and requested an extension of the registration deadline beyond the initial July 1 date. (In June, BIR and ReMA representatives met with AQSIQ officials in Beijing to clarify the registration program and personally request a deadline extension. AQSIQ did extend the registration deadline to Aug. 1, 2004, while also extending the date of acceptance for unregistered overseas shipments from bills of lading dated prior to Nov. 1, 2004.)
Covering the Commodities
Aside from the controversial registration issue, China was a major focus in the market discussions at BIR division meetings, with speakers speculating on when Chinese buyers would return to the market and what their effect would be on scrap fundamentals and prices as the year progresses.
Several speakers at the ferrous and nonferrous division meetings noted the lower prices being offered to consumers, though most forecast higher scrap prices ahead based on higher global steel production and positive supply-and-demand fundamentals for several nonferrous base metals.
Ferrous: Ferrous Division President Robert Philip of Hugo Neu Schnitzer Global Trade (Portland, Ore.) characterized the second quarter lull in ferrous scrap exports as only a “short-term break” before higher demand reasserts itself. Though prices have come off the highs established this spring, 2004 will be a year of “continued strength in scrap volume sales and scrap prices,” he said. According to Denis Mittleman of Hugo Neu Schnitzer Global Trade (New York City), recent prices under $200 per mt for heavy melting steel scrap delivered to Turkey and under $220 per mt to Asia are “not sustainable and will eventually move upwards again.”
There was little consensus among BIR delegates, however, as to when China will return to the market and its impact on future ferrous scrap prices. Jeremy Sutcliffe of Sims Group Ltd. (Sydney, Australia) maintained that ferrous scrap prices will soon stabilize, with prices trading in a far narrower band and not differing “too much from the year just past.”
Anton van Genuchten of TSR GmbH & Co. KG (Duisburg, Germany) offered a more bullish picture. In his view, the “steel boom” will continue, with world steel production this year exceeding 1 billion mt for the first time. Likewise, keynote speaker Dieter Ameling of the German Steel Federation (Dusseldorf) said 2004 global steel production would total 1.024 billion mt, with China’s output pegged at 263 million mt.
Regarding international trade and concerns about scrap supplies, delegates agreed that there’s no shortage of ferrous scrap in the EU. At the same time, however, Christian Rubach of the European Ferrous Recycling Federation (EFR) warned of retaliatory measures now in place by the EU against imported U.S. scrap. These measures, he reported, impose EU import duties on U.S. ferrous scrap starting at 5 percent and increasing 1 percent each month until March 2005—up to a maximum of 17 percent.
Nonferrous: At the nonferrous division meeting, speakers reviewed EU and U.S. base metal market conditions, reiterating China’s influence on global scrap fundamentals. Guest speaker Lothar Krumbügel of Diehl Metall Stiftung & Co. KG (Röthenbach, Germany) stated that the European scrap balance has been negatively affected by several factors, including scrap export taxes imposed by the Russian government; low scrap arisings due to reduced industrial production; and, especially, scrap exports to the Far East.
In his view, unfair trading practices by Chinese buyers are a major cause of the so-called shortage of copper scrap in Europe. The “exorbitant prices paid by Chinese importers,” he said, are supported by China’s value-added tax (VAT) rebate system, which enables Chinese scrap buyers to pay above market prices—at the expense of U.S. and EU scrap consumers.
In response, U.S. and EU metal producers have approached their respective government authorities to ask the World Trade Organization to address China’s unfair trade practices, Krumbügel said. Though he acknowledged that European authorities had been asked to safeguard the scrap supply in Europe, he warned that “the metal industry will have to find its own way of securing its supply” should this scrap-export situation continue. He also criticized metal merchants for “accelerating the descent of our industry by exporting scrap.”
Stainless & Alloys: At the Stainless Steel & Special Alloys Committee meeting, a big topic was the scrap supply situation—both in terms of current availability due to the earlier rise in nickel prices and the potential for a diminished pool of nickel-containing scrap as the year progresses.
From their high point in February, stainless steel scrap values have declined some 40 percent—or $600 per mt—in response to sliding LME nickel prices, noted Barry Hunter of Hunter-BenMet Associates L.L.C. (New York City). There’s still plenty of reason for optimism, he said, given this year’s forecasts for higher stainless steel production. This production, he claimed, will bring back Chinese buyers, who have simply taken a breather. Also, though stainless steel scrap appears to be in plentiful supply, Hunter sees “tight market conditions” developing in the third quarter.
Committee Chairman Sandro Giuliani of Giuliani Metalli SAS (Milan) generally concurred regarding the outlook for stainless steel, though he noted that European growth prospects are lagging both China and the United States. While scrap supplies are currently adequate, he agreed with Hunter that scrap availability will change after current scrap inventories are liquidated.
Featured speaker Jan Bender of ThyssenKrupp Nirosta GmbH (Krefeld, Germany) offered a generally upbeat assessment of the global stainless steel industry, which is being driven by China as well as capacity expansions in Central/Eastern Europe. The recent unprecedented increases in raw material prices, however, have prevented stainless producers from passing on these costs, thus impairing confidence in stainless steel prices, he said. This makes “customers look for alternative materials to stainless steel.” To combat potential product substitution, industry leaders must reduce production costs, increase productivity, and develop new markets, Bender suggested.
Paper: Like their metal brethren, scrap paper dealers at the BIR meeting also gave much thought to Asian demand for their commodities. According to Ranjit Baxi of J&H Sales International Ltd. (London), Asian demand for recovered paper exceeds 15 million mt a year, with China the largest consumer at more than 7 million mt. In addition, Indonesia, South Korea, and Taiwan each consume 1 million to 2 million mt annually, he noted.
As for the recent market situation, speakers noted “stagnant” conditions, with prices in several European countries said to be weakening. Other EU recyclers, however, noted that bulk grades are steady and balanced. In the United States, the market has been “fairly stable,” said Michael Moulton of Koch Pulp and Paper Trading L.L.C. (Houston), with OCC prices around $90 to $95 a ton (seller’s dock) and an upside potential of $5 to $10 a ton in the next few months. ONP, in comparison, looks steady through the summer months, he said.
Ongoing Environmental Challenges
On the environmental front, BIR’s International Environmental Council session offered fresh insights into the EU’s end-of-life vehicle (ELV) directive. Willi Fey of General Motors Europe (Rüsselsheim, Germany) discussed several aspects of the directive and took issue with the proposed recycling/reuse and landfill quotas and targets, which he maintained would not gain approval from participating countries by 2006. Different countries are taking different approaches to treatment technologies, thus acceptance in one country would not necessarily gain approval in another, he said. In addition, landfill directives in the EU are not uniform.
Ross Bartley, BIR’s environmental and technical director, then reviewed other environment-related topics, updating attendees on the Basel Conven-tion, radioactive scrap, and revisions to the EU waste shipment regulations. Based on a strict interpretation of those regulations, metal merchants could potentially be bypassed in the supply chain. In response, BIR had submitted separate definitions of the trader/dealer and broker functions, thus giving special recognition to their individual roles in the marketplace. This process, Bartley said, remains an ongoing priority for BIR.
Robert J. Garino is director of commodities for ISRI.
With scrap markets taking a breather, recyclers at BIR’s spring convention focused on threats to the free-and-fair trade of scrap as well as China’s proposed supplier-registration system.