January/February 2005
Strong demand for most scrap metals and growing mill capacity for recovered paper highlighted BIR’s fall meeting, though exporters face new restrictions on shipments to China and India.
By Robert L. Reid
At the fall meeting of the Bureau of International Recycling (BIR) (Brussels, Belgium) in London, the title of Londoner Charles Dickens’ Great Expectations was a fitting measure of the attendees’ mood. Upbeat reports for most metals and hopes for better pricing ahead for recovered paper were accompanied by a well-received announcement on the meeting’s opening day that China had again extended the deadline for scrap shippers to obtain approval from its General Administration of Quality Supervision, Inspection, and Quarantine (AQSIQ) to export scrap to China. Enforcement of the new registration system was postponed from Nov. 1, 2004, to Jan. 1, 2005, after which scrap shipment inspection requests by unregistered suppliers won’t be accepted.
Here’s a summary of the market reports for ferrous, nonferrous, stainless, and paper, which highlighted at least one “stellar turnaround,” some expectations of better times going forward, and occasional concerns over uncertainty and volatility in certain commodities.
Ferrous Future Looks Bright
U.S. steel and scrap companies enjoyed record revenues and earnings during much of 2004—“a stellar turnaround from less than two years ago, when the market seemed hovering at near-record 20-year lows,” reported Ferrous Division President Robert Philip of Hugo Neu Schnitzer Global Trade L.L.C. (New York City). And while late-year scrap prices were easing off their earlier surge, they “do remain above recent historic levels and are likely to remain high,” Philip said.
“U.S. scrapyards will continue to respond to the strong scrap demand from U.S. steel mills, while also benefiting from renewed diverse export markets,” Philip noted. Going forward, U.S. ferrous scrap processors will enjoy increased sales to certain European markets, Mexico, and Latin America, he predicted. Markets should also improve in South Korea, Southeast Asia, and India, which is investing more than $2 billion in new steel capacity, Philip said. The “level of opportunity” in China remains “gargantuan,” he added, noting that the two-thirds of Chinese citizens—about 800 million people—who live in rural areas are all potential consumers of steel.
On the domestic mill side, U.S. producers have been making about 2 million tons of steel a week—roughly a 90-percent utilization rate—while “selling nearly everything produced,” Philip said.
John Neu, also of Hugo Neu Schnitzer Global Trade, echoed the optimism for ferrous. After enjoying an “amazing” 2004, “we can see many positive signs for the near term,” he said. “World capital investment as well as consumer spending are still at levels that would indicate solid growth in the first half of 2005.” While capital investments have not been quite as strong as consumer spending, “we’re confident that a major correction is not imminent,” he asserted.
Slight declines in steel prices and concerns over oil prices do present possible problems, he conceded, though slower scrap arisings over the winter and increasing ocean freight rates “will temper this negativity at least through the first quarter of 2005.”
China’s Role and Restrictions. Yang Zunqing of the China Iron & Steel Association (Beijing) highlighted his country’s dramatic growth in crude steel production, which was expected to reach 260 million mt or higher for 2004 (up 17 percent from 2003) and 240 million mt for pig iron (up nearly 19 percent). Meanwhile, apparent consumption was forecast at 276 million mt, up 13 percent.
Though investment in China’s steel industry increased more than 40 percent in the first nine months of 2004, the government worked to prevent overheating by freezing some 345 projects, eliminating roughly 12.9 million mt of steel capacity and 13.1 million mt of pig iron capacity, Yang reported.
“China’s economic development foundation is sound,” he concluded, and its steel industry “will keep the momentum for many years.” Though China faces challenges regarding energy, transportation, and raw materials, Yang also stressed that “the current macro-control policy will enable the steel industry to develop on a healthier and more stable basis.”
Growing Global Scrap Demand. World crude steel production in 2004 was expected to reach a record 1.05 billion mt, up 9 percent from the previous year, according to the forecast by Steve Mackrell of the Iron and Steel Statistics Bureau (ISSB) (London). Over the past three years, global steel production has increased more than 60 million mt a year, on average, “putting extra strain on the world’s supply of steelmaking materials” such as scrap, he noted.
While an overall improving world economy contributed to this steel surge, the major driver has been China, whose share of world steel production has grown from roughly 8 percent in 1989 to 25 percent today, Mackrell said. Moreover, China is likely to remain in a “steel-intensive” mode for possibly another 20 years.
Oxygen steelmaking, which uses less scrap than electric-arc furnace (EAF) production, dominates the Chinese industry, accounting for 85 percent of its production, Mackrell said. Still, China is second only to the United States in scrap-intensive EAF steelmaking. Also in the top 10 for EAF production are countries such as Turkey, Spain, Mexico, Japan, India, and South Korea—all of which “are going to be major markets for scrap,” he predicted.
Overall, the global steel industry—regardless of production method—had to find an extra 32 million mt of scrap in 2004, squeezing scrap supplies and forcing that material to travel longer distances, Mackrell said. Last year, some 85 million mt of ferrous scrap crossed international borders worldwide—a 50-percent increase from five years ago, he noted. Moreover, the value of that scrap tripled over the same five-year period.
Looking ahead, Mackrell forecast global steel production of 1.115 billion mt in 2005, followed by 1.154 billion mt in 2006, 1.195 billion mt in 2007, and 1.327 billion mt by 2010. Such rising production will also boost global demand for merchant scrap from an estimated 292 million mt in 2004 to 318 million mt in 2005 and 326 million mt in 2006, with continued steady growth that should reach 388 million mt by 2010, he predicted.
“I see a future where demand for scrap is going to grow larger, which means supply of scrap is going to remain tight, which means prices for scrap are going to stay high,” Mackrell concluded.
Continued Strength for Nonferrous Prices
Rising interest rates in the United States and sharply higher energy prices for transportation were making North America’s nonferrous-consuming sector increasingly nervous during the fall of 2004, reported Robert Stein of Alter Trading Co. (Grand Rapids, Mich.). Still, he predicted that the outlook for the remainder of the year looked good even if the “buying frenzy” evident throughout much of 2004 had “certainly eased.”
According to Stein, “demand for nonferrous scrap, unlike the markets themselves, remains steady.” Secondary aluminum prices, however, were declining at the time of his presentation due to plentiful supply, while brass and bronze ingotmakers were short of red brass and radiators. Higher grades of copper were fairly well-balanced, he noted. And while yellow brass was flowing freely to China, Stein detected some reluctance to export due to “sharply increased scrutiny of this commodity” by Chinese officials.
Restricting Shipments to India and China. India was also tightening restrictions on scrap imports, following a series of scrap-related explosions in different parts of the country, reported Ashwini Singhal of Singhal Commodities Ltd. (Mumbai). Though the material involved seemed to come from certain “war-affected West Asian countries,” India has decided that all unshredded scrap “imported from any location without exception” must be inspected prior to shipping by an approved certifying agency, he noted.
Shipping companies will need to insure compliance with the inspection rule prior to loading or face “stern measures,” Singhal said, while India’s customs department is also preparing procedures for inspecting scrap upon arrival. He added, however, that Indian consumers are “doubtful if the measures announced are completely enforceable since 100-percent inspection of bulk cargo is a tall order.”
China’s AQSIQ registration program was highlighted by Ma Hongchang of the China Nonferrous Metals Industry Association (Beijing). As of August 2004, some 3,500 firms had submitted registration material to AQSIQ, Ma said, with 2,046 granted temporary certifications by mid-October to ship scrap into China. These included 335 U.S. firms, 317 Japanese companies, and 205 European enterprises. He then discussed an overview of the regulations and restrictions under AQSIQ, including the 10 items of “solid wastes” that can be imported to China as raw materials, as well as the lists of prohibited items.
Though China’s nonferrous industry has led the world for three consecutive years in terms of production, the country’s recycling efforts recovered only about 2 million mt of nonferrous scrap in 2003, reported Pan Wenju, also of the China Nonferrous Metals Industry Association. Only 10 aluminum recycling enterprises in China have production of more than 10,000 mt annually, he noted, with most aluminum recyclers handling less than 5,000 mt. Pan noted at least four copper recyclers with annual production over 10,000 mt, and three lead recyclers at that level.
Various challenges confront China’s nonferrous recycling industry, he explained, including outdated equipment and “serious environmental contamination.”
An EU and Global Overview. Looking at nonferrous metals in the European Union, a written report from Michael Oppenheimer of Mountstar Metal Corp. Ltd. (Biggleswade, England) found increasing demand and strong prices across Europe. “It’s also worth noting that China seems to be mentioned on less occasions,” he wrote, noting that “prices can go up, even without the insatiable strong demand from China.” Domestic competition for scrap was aggressive in the United Kingdom, for instance, while consumers in Italy “have been panicking of late because of the continuous upward movement in LME quotations,” Oppenheimer reported.
In a global overview of nonferrous markets, Adam Rowley of Macquarie Research Metals and Mining (London) discussed the current low inventories, high metal prices, and high volatility. His outlook for 2005 forecast modestly slowing demand growth rates both for the Western World and China while supply growth will mostly be strong in response to 2004’s high prices. Though this will narrow the gap between supply and demand somewhat, he predicted that copper, zinc, and aluminum would remain in deficit through the first half of the year, with copper possibly back in balance by midyear. Thus, conditions are ripe for both high prices and high volatility in the future, said Rowley.
His price forecasts for 2005 see aluminum at 80 cents a pound, copper at $1.25, nickel at $6.75, zinc at 53 cents, lead at 40 cents, tin at $3.62 cents, and spot alumina at $350 a mt. Though all commodity prices will likely fall by 2006, as supply catches up with demand, these prices are expected to remain above 2003 levels—other than spot alumina, which Rowley saw dropping to $260 a mt from $297.5 in 2003. Overall, though, “we are in a prolonged period of strength in prices,” he concluded.
Uncertainty in Stainless
Uncertainty was the key word in a written report on the U.S. stainless steel scrap market submitted by Barry Hunter of Hunter-BenMet Associates L.L.C. (New York City). “The volatility of the current market seems to defy any thought of stability in the market and can offer only increased uncertainties looking at purchasing and sales strategies,” Hunter said.
Likewise, uncertainty over LME prices was raising concern among domestic mills, which otherwise remain “aggressive to purchase scrap,” Hunter wrote. He also noted—and simultaneously questioned—reports that China has become the leading market for U.S. stainless steel scrap. U.S. exports of stainless steel scrap were running at about the same tonnage in 2004 as 2003—roughly 40,000 mt a month, he added.
In Europe, stainless scrap availability was influenced by the shift of manufacturing from Western Europe to Eastern Europe and Asia—thereby decreasing the available scrap in the West—and by high prices, which induced dealers and producers to destock, reported Sandro Giuliani of Giuliani Metalli-Cronimet Group (Milan).
“Dramatic fluctuations” took nickel on a “roller-coaster movement of quotations” in 2004, with prices ranging from highs of more than $8 a pound to lows of under $5 a pound. To explain these changes, Giuliani cited “strong nervousness brought about by a pressing demand, high prices, and the role of speculation.”
In China, stainless steel is “definitely a very important development area,” explained Yang Zunqing of the China Iron & Steel Association. The government has already approved several expansions and greenfield projects that should boost capacity “by up to nearly 6 million tonnes in a very short period of time,” Yang noted.
Unfortunately, he added, the market is not developing as fast as production, thus his association is urging investors to be cautious.
Turning to the markets for vacuum-prepared nickel alloys, titanium alloys, and refractory scrap, Stuart Freilich of Universal Metal Corp. (Worcester, Mass.) described 2004 as a “spectacular” year and predicted firm markets “throughout most of 2005 but with higher levels of price volatility.”
High oil prices, in particular, could have an impact on world economies in general and the “high-legacy-cost airline carriers” in particular, perhaps leading to cancelled new aircraft purchases, he noted. Such an impact, however, “will probably not be felt until the latter part of the year if at all,” Freilich said.
Budget restraints could limit some proposed military spending by the United States and other nations, he added, while at the same time certain other countries—most notably Italy—plan to increase their military spending.
Ferro and ingot revert grades of titanium scrap enjoyed higher prices throughout 2004 and should remain strong in 2005, Freilich predicted.
Bullish Nickel. Nickel enjoyed a major bull market for much of 2004, with prices averaging $6.30 a pound—double the long-term average, said Jim Lennon of Macquarie Research Metals and Mining. The major drivers of this bull market have been China’s “phenomenal growth,” whose nickel consumption has risen more than 84 percent since 2001; the Western World’s economic recovery; tightness in the scrap market; an “underinvestment in new supply”; and reported inventories at “extremely low levels,” he noted.
The current market’s strength is highlighted by the fact that world stainless steel production is now in its third straight year of growth, whereas good years previously came mostly in pairs, Lennon said.
Though the nickel market has begun rebalancing, it will likely remain tight in 2005, with a small deficit and firm prices especially in the first half of the year, he predicted. LME nickel looked as if it would end 2004 with an average price of $6.15 a pound, Lennon said, predicting that the 2005 price could reach $6.75. After that, prices are expected to decline to $5 in 2006, $4 in 2007, and $3.50 by 2008, he projected, based on “generous” assumptions on scrap availability and primary nickel growth.
Looking farther ahead, Lennon said “the next 15 years require massive investment in new capacity for the first time since the 1970s,” with as much as 700,000 mt of new capacity needed by 2020.
Recovered Paper Consumption Climbing
An additional 18 million mt of recovered fiber capacity globally is expected by 2007, with total world consumption climbing to well over 220 million mt by 2010, reported Esko Uutela of EU Consulting (Starnburg, Germany). China and other Asian countries are investing heavily in new packaging capacity, while Western Europe is also adding capacity in ONP, OCC, and mixed grades, he noted.
Global recovery rates for scrap paper could reach 54 percent by 2010, Uutela predicted, with utilization rates following closely behind. China and other Asian countries will see utilization rates near or above 70 percent by 2010 and could be reaching their maximums, he noted. Chinese domestic recovery should reach just over 39 percent by 2010, the second-lowest rate after Africa’s 31 percent. Thus, China will continue to need massive amounts of imported scrap paper—more than 12 million mt in 2004, growing to perhaps as much as 17 million mt annually by 2010, Uutela said.
Though Uutela expects North America to remain “the main worldwide source for recovered fiber,” exports from Western Europe are picking up and could reach 5 million mt by the decade’s end, up from an estimated 3.5 million mt recently, with the United Kingdom already replacing Germany as the leading European exporter. Because of its great appetite for recovered fiber, China has been supplementing its North American scrap paper purchases by buying from Western Europe, Japan, Hong Kong, and Singapore, Uutela said.
In the short term, improving economies and paper and board demand in both North America and Europe will likely tighten supplies and cause upward pressure on prices, Uutela said. In the long term, untapped recovery potential still exists in many countries—if pricing covers the costs of increased collection and transportation, he noted.
‘Difficult’ Trading, Volatile Pricing. Uutela’s upbeat forecast for the future contrasted somewhat with a feeling that demand and recovered fiber prices in 2004 had not been strong enough. Ranjit Baxi of J&H Sales International Ltd. (London) highlighted a “difficult trading period for exports of recovered paper,” marked by “rather sluggish” demand from various Asian countries during much of 2004, weaker domestic markets, and continual fluctuations in global prices that “allowed buyers to remain on the sidelines waiting for prices to bottom out.” A fluctuating dollar made it difficult for exporting companies in general to calculate prices, he noted, while exports to China had to contend with uncertainty over AQSIQ’s registration process.
Michael Moulton of Koch Pulp and Paper Trading L.L.C. (Houston) described the U.S. market for recovered fiber as “fairly stable,” though he predicted volatile prices in 2005. He also explored the different regions of OCC pricing, noting that the Chicago/Midwest area had traditionally been a lower-price region until the influx of containers bringing goods from the West Coast into America’s interior made it cheap to move products out of the interior and back to the coast.
Robert L. Reid is managing editor of
Scrap.
Strong demand for most scrap metals and growing mill capacity for recovered paper highlighted BIR’s fall meeting, though exporters face new restrictions on shipments to China and India.