BIR Dublin—Looking for a Lift

Not even the luck of the Irish could transform the pessimistic scrap market reports offered at BIR’s October meeting in Dublin.

By Kent Kiser

Kent Kiser is editor and associate publisher of Scrap.

When Irish eyes are smiling
Sure it’s like a morn in spring ...

Regardless of this well-known verse, Irish eyes—or any other eyes for that matter—clearly weren’t smiling at the fall meeting of the Bureau of International Recycling (BIR) in Dublin. Deteriorating economic conditions and global uncertainty following the Sept. 11 terrorist attacks gave scrap recyclers little reason to smile.

BIR President Barry Hunter of Keywell L.L.C. (Elizabeth. N.J.) captured the sentiments of many in saying, “The dramatic impact of the horrific events of Sept. 11 has affected all our lives, our businesses, and the manner in which we will conduct both for years to come. When it comes to business forecasts, the most knowledgeable predictions are now mere guesses.”

Those scrap executives who did try to discern some market trends were far from optimistic for 2002, as the following reports show.

Ferrous Seeks Firmer Footing

United States: In the ailing U.S. steel industry, mills were running at about 71 percent of capacity as of October, with the potential to slip to 65 percent by year’s end, said John Neu of Hugo Neu Corp. (New York City). Though imports of finished and semifinished steel have decreased significantly, “many foreign products are being sold in the United States at prices that are forcing even highly competitive mills to cut production,” he reported.

The good news for U.S. steelmakers has been the historic low ferrous scrap prices, which are enabling some minimills to remain profitable, Neu said. Despite the depressed scrap prices, supplies continue to flow, prompting many U.S. processors to increase their exports. The decline in scrap exports from Eastern Europe has boosted global demand for U.S. ferrous scrap, Neu observed.

Any other positive changes, he said, will only occur in the longer term—after steel inventory and capacity levels are rationalized—“when lower interest rates and normalized political conditions could result in improved business for the U.S. scrap and steel industries.”

Europe: European steel production was down 2 percent through August compared with the same period in 2000, noted Björn Voigt of Thyssen Sonnenberg Recycling GmbH & Co. (Duisburg, Germany). Though Spain, Sweden, and Austria remained strong, steel production in France, Germany, and the United Kingdom was down 4 to 5 percent on average—plus Ispat closed its steelworks in Cork, Ireland. In addition, the previously “excellent” European foundry business turned south.

The European market has also seen lower scrap availability, which has increased competition for material and put pressure on margins, Voigt said. Fortunately, European ferrous scrap exports to Turkey—about 4 million mt through June—helped stabilize prices. Turkey had to buy more scrap from Western Europe due to the reduced exports from Eastern Europe, which declined to about 2.5 million mt.

In the United Kingdom, liquid steel production through August was down 12 percent compared with only a 2-percent decrease in continental Europe, said Mark Priestman of European Metal Recycling Ltd. (Warrington, England). One notable event was the closing of the Corus Llanwern mill in South Wales, while other U.K. steelmakers have been hurt by the strength of the pound and rising energy costs.

U.K. ferrous scrap processors have turned more to the export market, shipping 2.5 million mt in the first half—up considerably from the previous two years, Priestman said. “What is significant, though, is the dramatic slowdown of material into our yards in the past six weeks,” he stated. “It is a matter of considerable concern and must lead us to believe there are more difficult times ahead.”

In the Russian market, domestic prices have remained low and exports have been limited due to tariffs, customs duties, and the closure of some boundary transition points, said Igor Kuzmin of MAIR Joint Stock Co. (Moscow). These factors have reduced scrap collections, with summer 2001 supplies declining 13 percent compared with summer 2000. The lack of ferrous scrap in the home market boosted domestic prices as much as 10 percent in the fall. Russian ferrous scrap exports weren’t expected to exceed 7 million mt in 2001, with about 6.2 million mt of that going to non-C.I.S. countries, Kuzmin noted.

Scrap volumes were also down in Ukraine in the summer due to seasonal decreases and higher buying prices on the export market from Turkey and Southeast Asia. To secure scrap, Ukrainian mills had to increase their buying prices “significantly” at the beginning of August, Kuzmin said. The tight scrap supply has resulted in some administrative restrictions, with the Dnepropetrovsk Region Administration requiring 50 percent of local scrap to go to domestic steelmakers. Scrap export tariffs and restrictions have also been imposed to redirect scrap to domestic consumers. Ukrainian scrap exports, meanwhile, decreased about 15 percent and weren’t expected to exceed 4.5 million mt in 2001.

Asia/Pacific Rim: The Asia/Pacific steel industry entered a “dull” phase in mid-2001 due to falling exports, concerns about the U.S. economy, and trade restrictions, all of which led to a buildup of steel stocks in the region, according to a report by Ferrous Division President John Crabb of Simsmetal Ltd. (Sydney, Australia). Imports of finished and semifinished steel into the Asia/Pacific region have prompted producers—including those in Thailand and Malaysia—to seek protective measures from their respective governments.

China has been the only country with rising steel production, Crabb noted. Though China imported record quantities of scrap in the first half of 2001, its purchases fell in response to slowing foreign investment and declining steel exports. Notably, China has not exported pig iron since the early part of 2001, though Japan resumed its pig iron exports in October, causing a rapid decline in pig iron prices into the Far East and Asia and putting pressure on scrap prices, Crabb said.

On the upside, he noted, the onset of winter in the northern hemisphere and industrial slowdowns in major world economies could reduce scrap arisings, which could prop up the prices again.

The economic situation in Japan, meanwhile, has gone from bad to worse, bogging down into a “fathomless quagmire” in which steel demand and prices have no prospect for improvement, said Sadao Taya of Shinsei Co. Ltd. (Osaka, Japan). Though Japanese steelmakers are reducing production, more drastic measures are needed, including mergers and closures of some integrated mills, he said. Scrap demand and prices have decreased in kind, supported only by increased exports, which could end the year around 5 million mt—almost double the 2000 total.

Nonferrous Looks for Light

United States: Beginning in mid-2001, the U.S. nonferrous market was undermined by insolvencies, production cutbacks in response to reduced demand, and an economy that hadn’t digested the effects of sharply lower interest rates, said Robert Stein of Louis Padnos Iron & Metal Co. (Holland, Mich.).

Copper and aluminum were affected by the softening U.S. construction industry, with aluminum also hit by lower automobile production. With aluminum scrap less available due to lower industrial production, scrap prices rose and put secondary smelters in a margin squeeze, Stein said. Primary aluminum producers, meanwhile, saw business slide 25 percent, with orders for the first quarter of 2002 indicating continued weakness.

Brass mills were hit by weakness in the electronics sector, new coin production, and the overall economic decline. Copper tube producers, meanwhile, saw scrap discounts tighten as supplies dwindled, and there was “no price incentive to attract material to the market,” Stein stated.

The outlook is far from positive for 2002. “Surpluses of primary metals, coupled with relatively high scrap values, put pressure on the viability of consumers’ use of scrap to make their finished products,” Stein said, adding that “this does not bode well for those of us in the scrap industry.”

For aluminum, there’s no shortage of prime and full LME warehouses, which is a sign that major manufacturers are cutting jobs and production, said Larry Sax of Jack Engle & Co. (Trenton, Ontario). “One prediction is that if consumer confidence in the world is not strengthened and consumers do not get buying again like they were, then aluminum markets will stay depressed,” Sax said. “Consumer confidence is key.”

The best Stein could say about copper was that “it still conducts electricity.” Though he applauded Phelps Dodge Corp.’s decision to trim its production by 225,000 tons, he noted that “it didn’t take the market long to throw off this production cut and go back to the levels at which it was trading prior to the announcement.” Other countries such as Chile continue producing regardless of prices, suggesting that the copper market will likely remain in surplus in 2002.

A few factors could help the market next year, however. As the availability of copper scrap declines, manufacturers increase their use of copper cathodes, working down cathode supplies and boosting the overall market, Stein said. Copper prices, meanwhile, could be driven up by increased speculative interest in the market, though such increases could be short-lived. What’s needed is a fundamental improvement in the world economies, Stein said, stating, “We’re not ready for that yet.”

Germany: The German nonferrous scrap market has been in shortage, with scrap aluminum, lead, copper, nickel, zinc, and tin only available for purchase “with difficulty,” said Hans-Peter Münster of VDM (Bonn, Germany). The reason for this tightness is that many traders are holding material for higher prices. Secondary mills, in particular, are having difficulty sourcing enough scrap to meet their production. As a result, they’re criticizing the export of scrap outside of the European Union, Münster said. The Russian export ban on copper scrap is putting more pressure on Western European buyers, and it’s uncertain when scrap will flow from there again.

Asia/Pacific Rim: Recent political and economic events have caused lower industrial production, slackening export demand, and falling exports in this region, according to a report by Kumar Radhakrishnan of Simsmetal Ltd. Scrap consumers are taking a “very cautious short-term approach,” he noted, which is reducing scrap demand in most countries and putting processors under margin pressure despite the narrowing discount for scrap to primary metals. 

In addition, scrap supplies have declined considerably—as much as 50 percent of normal volume in some countries.

Demand for high-grade copper scrap has been supported by Japan, South Korea, and Taiwan, with prices trading at cash levels or at a premium to the LME, said Radhakrishnan. Supplies of these grades could be tightening, however.
No. 2 copper scrap has been heading largely to China, driven by duty-free licenses available to some state-owned consumers through the end of 2001. Notably, the difference between seller’s and buyer’s prices has been widening recently, he noted.

Demand for breakage and lower-grade copper scrap has also remained consistent. In addition, reasonable demand for brass products within the region has sustained the brass scrap market, despite falling exports of general goods to the United States and Europe, Radhakrishnan reported.

Zinc and lead, on the other hand, continue to face difficulty. China’s zinc exports have been marginal due to low LME prices, prompting the country to amass sizable zinc inventories, he said. These stocks and lower import demand from South Asia have pushed down zinc prices.

The aluminum market has been more volatile. Interest in aluminum scrap from South Korean deox producers has declined along with steel production, with little demand from Taiwan as well, Radhakrishnan reported.

China, meanwhile, has been working down high stock levels. The market for extrusion scrap has been particularly affected due to lower demand and high production levels of primary aluminum. Supplies of scrap grades such as Tense and Taint/Tabor have tightened, which has helped boost demand for mixed metals and floated aluminum. 

The market will remain volatile in the near term, Radhakrishnan said, though China’s entry into the World Trade Organization in January could improve the trading climate in Asia.

Stainless Faces Tight Scrap Supplies—and Margins

Since last May, predictions of high demand for stainless scrap came true—unfortunately, so did forecasts of a “severe scrap shortage,” which prompted stainless mills to cut the amount of scrap in their charges 15 to 20 percent, noted Stainless Steel and Special Alloys Committee Chairman Michael Wright of ELG Haniel Metals Ltd. (Sheffield, England).

These conditions of high demand and tight supply would normally boost stainless scrap prices. Not this time due to the ready availability of nickel, ferrochrome, and steel as well as the falling price of nickel, which slid from $7,000 a mt in May to $4,500 a mt by mid-October. “This has created an almost-nightmare scenario for stainless steel processors and traders,” said Wright. “A combination of high demand, low availability, and falling prices has made it practically impossible for any level of profitability to be sustained.”

Forecasts expect global stainless production to end 2001 about 2.5 percent down at 19 million mt. In 2002, though, stainless production is expected to rise 5 percent—or 900,000 mt—boosted by expansions at North American Stainless in the United States, AvestaPolarit in Finland, and ALZ in Belgium.

United States: Though demand in the U.S. stainless scrap market has not been “all that bad,” the lingering problem is margins, said BIR President Barry Hunter. Another concern is that U.S. stainless production decreased 20 percent in the third quarter of 2001 compared with the third quarter of 2000, with a similar decline expected in the fourth quarter. The largest reduction was on the austenitic side, which slipped 25 percent, Hunter noted. Despite predictions of 6-percent growth, U.S. stainless production was expected to end 2001 around 1.3 million tons—about equal with 2000. Given the significant reduction of imports of finished products, this production rate “tends not to bode well for the future,” he warned.

Though U.S. production declined, scrap availability remained tight throughout the fall, forcing mills to adjust their melt mixes and prompting processors to offer higher prices to draw out more material. “So much for margins,” Hunter observed.

Positively, U.S. stainless scrap exports were averaging about 40,000 mt a month through July—25 percent above the same time period in 2000, he reported. Asian consumers imported more than 80 percent of this U.S. stainless scrap, with Taiwan replacing South Korea as the top buyer and China emerging as a small but growing player, doubling its purchases to about 3,000 mt a month.

Europe: European market reports echoed the trends of lower stainless production and tight scrap supplies. The supply of stainless scrap fell dramatically beginning in the summer for several reasons, said Sandro Giuliani of Giuliani Metalli S.A. (Milan): the decrease in stainless production, which meant less production scrap; fewer demolition projects; the holding of material for better prices; and drastically lower scrap exports from Eastern Europe.

Germany’s stainless production was expected to end 2001 down 4 percent, while its stainless scrap consumption could be up 5.5 percent to 327,000 mt, said Gerhard Teborg of Eisenlegierungen Handelsgesellschaft (Duisburg, Germany).

In the United Kingdom, one encouraging development was that production at AvestaPolarit Sheffield was expected to end 2001 around 560,000 mt—up 40,000 mt compared with 2000, Wright reported. Of that total, the mill’s austenitic production was projected to grow from 432,000 to 490,000 mt. Other good news is AvestaPolarit Sheffield’s plan to spend £15 million to install a billet caster, which would boost the mill’s production up to 600,000 mt from 2003 onward.

Prior to the events of Sept. 11, forecasts called for a slight destocking stage in the European stainless industry. Now, Wright stated, “a lack of confidence in major investments has meant that stockists are critically viewing their own inventory positions and signs are that we could see in the short to medium term cutbacks in production and, therefore, reduction in demand for stainless steel raw materials.”

Paper Strives for Stability

United States: In the U.S. scrap paper export market, China continued to buy “unprecedented” volumes of mixed paper and ONP (especially deinking), helping to bolster prices for these grades, said Alfred Hirt of Sanne, Kruse & Pape GmbH & Co. (Hamburg, Germany). One concern is that declining advertising in U.S. newspapers is shrinking their size and thus reducing the volume of ONP available for collection.

China was also the largest consumer of U.S. OCC—having more influence on prices than even domestic consumers—but its erratic buying patterns drove up prices, then just as quickly forced them down, Hirt said.

The middle and deinking grades continued to enjoy solid demand from duplex and tissue mills, both in the United States and elsewhere, he noted. Though there was ongoing interest in ledger, book stock, and office paper, the upward price pressure abated for these grades.

Hirt closed by warning that possible war-related surcharges on export containers could seriously limit U.S. scrap paper exports in the short term.

Europe: The summer holidays, lower paginations, and economic slowdown reduced the generation of recovered paper, said Maarten Kleiweg de Zwaan of BPB Recycling Nederland (The Hague). This tightness of scrap and mill downtime created a stable market, with good demand for most grades. Interest from Far East consumers, especially China, remained strong through the summer thanks to attractive freight rates and stable-to-rising prices for U.S. scrap paper.

Fourth-quarter prospects were positive—until the attacks of Sept. 11, noted Kleiweg de Zwaan. Since then, European processors have been reluctant to ship to the Far East due to possible surcharges of up to $600 per container. “The general expectation is that prices will remain at approximately present levels for the time being, barring an economic meltdown,” he stated.

The U.K. recovered paper market has been distorted by the use of packaging recovery notes (PRNs), which were introduced to help implement the European Union’s packaging directive, noted Gerry West of Severnside Waste Paper Ltd. (Cardiff, Wales). Processors were using these notes—which could be worth nothing to more than £30 a mt—to earn more for their recovered paper in both domestic and export transactions. Given this price support, U.K. merchants were expected to easily export more in 2001 than the 700,000 mt of scrap paper shipped in 2000.

On the downside, the United Kingdom has continued to lose paper-industry players, with the Inveresk deinking mill and its 40,000 mt of annual capacity due to close, West said. Though more closures could occur, the United Kingdom could also gain a new 350,000-mt-a-year newsprint mill.

Market highlights from other European countries included the following:

• Low demand from German paper producers translated to low collection levels in the summer, with only mixed and deinking in short supply.
• In Spain, scrap paper prices were stable but stocks were low, with overall collection figures for 2001 expected to match those of 2000.
• Italy’s recovered paper market was depressed due to economic problems at domestic mills, with the corrugated sector—the largest scrap paper consumer—having to close operations due to poor sales.
• In Eastern Europe, the Czech Republic was on track to consume about 400,000 mt of recovered paper in 2001. In the first half of 2001, the country’s scrap paper exports and imports were almost balanced at 43,000 and 35,000 mt, respectively. Average scrap paper prices, however, had slipped 25 percent since the beginning of the year.

Hungary—the largest paper producer in Eastern Europe—has an annual output of about 700,000 mt, with recovered fiber accounting for 45 percent of that total. The country is striving to build its paper-collection network to help meet its fiber needs.

Ukraine, whose paper production is around 560,000 mt a year, collects only 90,000 mt of recovered paper and thus must rely on imports to feed its mills.

Asia/Pacific Rim: As of last fall, the Asian market showed stable demand for most paper grades, though prices had improved slightly for shipments to large consumers such as China, Taiwan, South Korea, India, and Indonesia thanks to declining sea freight rates, said Alfred Hirt. Thailand and other countries had also increased their purchases of Japanese OCC at prices $10-to-$15-a-mt lower than European material.

The Metal-Sorting Question: Hand or Machine?

When it comes to sorting mixed nonferrous metals, which is better: hand sorting or machine sorting? That was the question behind a special workshop on metal sorting at the Dublin meeting.

On the hand-sorting side was David Chiao of Uni-All Group Ltd. (Atlanta), which exports mixed metals to its plants in China for manual sorting. These plants use simple screens, drum washers, and sink/float tubs to divide mixed metals into streams of different sizes. Then hand sorters pick out copper, brass, cast aluminum, sheet aluminum, cable, stainless steel, and other grades. The sorters—all women—work nine hours a day, 28 days a month, and earn about $100 a month. With such low labor costs, Uni-All’s hand-sorting process recovers metals for $10 to $15 a ton, Chiao said.

On the machine-sorting side was Leen Visser, who reviewed the operations of his firm, Huron Valley Europe N.V. in Overpelt, Belgium. This plant sorts mixed metals using several processes, including float/media, eddy currents, and imaging. “The further you go with the separation, the more costs you add,” he said, pointing out that “economics determine the point at which you stop separating.”

Mike Bevan of Separation Systems Engineering GmbH (SSE) (Wedel, Germany) also argued for machine sorting. 

Bevan discussed SSE systems such as the MagnoSense, a high-frequency sensor that removes nonferrous and stainless steel from eddy-current streams; the SpectraSense, a digital optic sensor that detects metals by color and shape; and the CombiSense, which includes both the high-frequency and digital-optic features. According to Bevan, these systems can sort metals measuring 5 to 20 mm for $26 per mt, 20 to 50 mm for $23 per mt, and 50 to 100 mm for $17 per mt. In his view, machine sorting gives scrap processors more control over their product as well as commercial freedom from hand-sorting buyers such as China.

Promoting Nickel’s Recycling Strengths

If the nickel industry wants “the political system to deliver sensible regulation relating to nickel,” it must “develop a full understanding of what nickel does through its life cycle” and “communicate this understanding clearly and widely to all parts of the political system,” said Ivor Kirman, the London-based president of the Nickel Development Institute (NiDI) (Toronto).

The problem is not with nickel’s original target audience—engineers, architects, designers, and specifiers—whose attitude toward nickel is “overwhelmingly positive.”

The problem lies in nickel’s “more political audiences,” most of whom have “no appreciation of the role of nickel in their daily lives.”

These new audiences are concerned with the full life cycle of products, including recycling.

“We believe that nickel is among the most highly recycled of all industrial raw materials,” Kirman said. “If we can substantiate this belief, then we have some very positive messages to communicate to the new political audience.”

Kirman offered four proposals on how NiDI and BIR can cooperate to promote nickel’s recycling strengths. First, he encouraged nickel recyclers to visit NiDI’s Web site—www.nidi.org/environment/ recycle/index.htm—to review and offer comments about its description of nickel recycling.

Second, BIR’s Stainless Steel & Special Alloys Committee should nominate a representative who will ensure effective communication between BIR and NiDI on nickel recycling.

Third, Kirman recommended forming a group of representatives from the nickel and stainless industries, BIR, and the International Nickel Study Group (London). This group would try to develop an annual statistical report on nickel production, use, and recycling.

Finally, NiDI will strive to “identify those areas of activity where nickel is not recycled but is lost to the environment, especially to landfill,” Kirman said. The goal would be to develop options for reducing such losses.

Will Nickel Slip Below $2?

“It looks like nickel prices are going to head below $2 a pound”—and they could stay there for most of 2002, asserted Mark Parker of Brook Hunt (Surrey, England). Explaining his bearish forecast, Parker noted that nickel prices declined dramatically in 2001 due to lower industrial production growth (down about 2 percent) and reduced Western World stainless steel production, which has decreased for the past four quarters. Production has slipped because of weaker stainless demand—which threatened to end 2001 down 5 percent—and because of destocking by stainless mills and service centers, Parker noted.

Nonstainless nickel markets were even weaker, with the potential to decline 7 percent in 2001—the largest annual decrease in the Western World—and possibly another 3 percent in 2002, Parker said.

Scrap consumption also declined last year—about 8 percent—due to lower stainless demand, reduced scrap availability from Eastern Europe, destocking at mills, and withholding of material in the supply chain, Parker noted.

Current negatives in the market, he continued, include slowing manufacturing activity in Europe, a collapse of stainless demand in Japan and building of stocks there, and excess global production capacity. The big negative, though, is declining consumer confidence, Parker said.

In 2002, industrial production could slip about 1 percent and Western World stainless demand could decline 3 percent. Overall nickel demand—which declined 6 percent in 2001—could grow less than 2 percent next year, Parker said. Stainless production, meanwhile, could grow 2 percent, and nickel use in stainless could rebound 4 percent in 2002 after falling 4 percent in 2001.

A turnaround in demand, however, “does not necessarily mean that nickel prices will improve,” Parker said. For prices to rise, nickel production must be cut. The problem is that 80 percent of producers can cover their cash costs at nickel prices of $2.25 a pound, giving them little incentive to cut production. Russian production is a particular problem, with that country’s nickel stockpiles possibly reaching 50,000 mt by the end of 2001. Without cuts, the nickel market could see its 2001 surplus of about 27,000 mt swell to as much as 67,000 mt, Parker said.

What’s the answer? “Nickel prices must decline in U.S. dollar terms to act as a mechanism to force supply adjustments,” Parker offered. Without production cuts, there will be a slow reduction in accumulated stocks that will dampen any price recovery. •