July/August 1993
International recycling executives recently met to consider economic and regulatory forces facing secondary materials markets. Although the news was generally gloomy, some saw signs of potential improvement down the road.
An estimated 500 international scrap market watchers gathered for the spring convention of the Bureau International de la Recuperation (BIR) (Brussels, Belgium) in Washington, D.C., in May, with many offering overlapping reports of poor demand for their commodities, reduced international scrap trade, and, for nonferrous metals, continuing disruptions blamed on the flow of material from former Soviet republics. BIR delegates also spoke of the troubles—both real and potential—of national and international legislation and regulation related to waste management, recycling, and environmental protection.
The conference offered no easy answers to the industry's woes, and the best most delegates could do was hope that their markets would somehow improve and balance their problems. And even with this hope, many indicated that improved demand for scrap—and higher prices—may have to wait until 1994.
In addition to the commodity sessions that spurred these market predictions, the meeting included a general assembly session, where Jean-Pierre LeHoux of FEDEREC (Paris) was elected to another two-year term as president. In addition, the group elected two vice presidents: Marvin Fox of Markovits & Fox (San Jose, Calif.), who was reelected to that position, and Thierry Legait of Compagnie Francaise des Ferrailles (Paris), who replaces Charles Hemmerle of Rolanfer SA (Woippy, France).
Speaking at the general assembly, Lehoux noted that work continues on the BIR 's "restructuring program," but did not offer details on plans. Nevertheless, he said it would be considered at the group's fall convention in Dusseldorf, Germany.
Nonferrous Negativity
Dour was the consensus mood among the nonferrous contingent at the convention, as base metal prices were reported revisiting lows last seen five or six years ago. Poor demand coupled with rising stocks and negative summertime seasonal factors were also weighing on the minds of participants, and, as a result, market summaries offered little encouragement over the near term for secondary metal markets in Asia , the United States , or Europe .
In his review of aluminum, copper, lead, and zinc markets, Larry Sax of Barmet Aluminum Corp. (Akron, Ohio), a vice president of the BIR nonferrous division, noted there was some hopeful macroeconomic news in the United States , but he suggested that these positive influences have basically bypassed the domestic nonferrous metals industry. "Most scrap metal people feel they have missed the recovery," he said. Furthermore, he predicted, the 1990s "will go down in the economic history books as the decade of little or no margin" for scrap processors.
A similar situation could be in the offing for European recyclers in the nonferrous business. While delegates from across the Atlantic noted some pockets of growth, such as in the United Kingdom , the European Community (EC) as a whole remains in recession, they said. In fact, the German economy, perhaps the most important gauge in the EC, is expected to suffer a 7-percent decline in industrial production this year, delegates reported, pointing out that this comes on the heels of a 2-percent drop in 1992.
With this as a backdrop, perceptions of the climate for nonferrous business in Europe in 1993 remained quite pessimistic at the BIR meeting. According to a report by German metal giant Verein Deutscher Metallhandler E.V. (Bonn, Germany) distributed and discussed at the session, the problems stem from "weak demand due to worldwide recession," an "oversupply of nonferrous metals," and "the continuous flow of [Commonwealth of Independent States] metals." Near-term expectations were termed "pessimistic" by the report, with more than 80 percent of German metal traders surveyed predicting metal prices would fall.
John Crabb of Simsmetal Ltd. (North Sydney, Australia), a BIR nonferrous division vice president, focused on Far Eastern nonferrous markets at the session, noting softness in what he called the "locomotive" economies of Australia, Japan, Korea, China, and Taiwan. Market troubles he identified included currency fluctuations that have worked against metal commodities, scrap surpluses, and the "collapse" of base metal prices. With this stormy background, Crabb refused to venture the timing of any "meaningful" price recovery.
Stainless Stumbling
Depressed stainless steel scrap markets were reported by BIR delegates from Germany, France, Italy, Switzerland, and the Nordic countries. Several delegates cited lower scrap availability, with reports that as much as 40-percent less 18/8 scrap has been available on the open market in some countries as compared with two years prior. On top of this, they noted, their scrap buying prices have been forced up, thus squeezing margins.
Analyzing the flow of stainless scrap into Europe from the former Soviet republics over the past two years and its impact on world nickel markets, Harry Leenman of Jewo Metaal Stainless Processing B.V. (Rotterdam, Netherlands), identified an enormous shift to secondary nickel consumption at the expense of primary nickel among the major European stainless steel mills in 1992. This shift, he said, ultimately led to substantial increases in stocks held both by producers and the London Metal Exchange (LME) (London).
In early 1993, however, Europe saw a "real shortage" of stainless steel scrap, forcing mills to consume more primary metal and less scrap, according to Leenman, who said he also perceived a similar situation in the United States .
Leenman predicted that European primary nickel demand will be up in 1993 as mills begin to recover, but Russian exports will not exceed last year's levels—good news for producers on both counts. These developments could set the stage for nickel on the LME to reach $3 per pound by fall, he said, though such a price is still "very cheap" when considering primary nickel production costs.
The "easy answer" explaining low LME nickel prices—and, therefore, scrap tags—can be traced to excessive supplies emanating from Russia and metal dumping by trading houses attempting to square their positions, said Morton B. Plant of Keywell Corp. (Baltimore). This explanation, however, glosses over a few elements in the overall nickel picture that may dictate the future of stainless steel scrap prices, he contended.
First and most significant of these elements, according to Plant, is the fact that ferro-nickel producers seem—surprisingly and by choice—not to be realizing the highest prices they could for their product compared with values for both primary nickel and nickel-containing scrap. He predicted that this is unlikely to change in 1993, as the producers apparently prefer to maximize their volume of sales rather than their margins.
Additionally, Plant noted, a firming trend in Europe begun in April narrowed the price gap between scrap nickel units and ferro-nickel. He attributed price pressure facing domestic scrap processors to currency factors as well as increasing scrap exports, especially to Canada . The result has been increased competition among U.S. processors, bidding scrap prices up, while production-oriented primary nickel producers are forcing their prices down, he said.
Plant concluded that nickel producers are eventually going to get the message that they can sell their product at higher prices, given that the mills are operating at or near capacity. But the time for the nickel producers to act is now, not later, he added.
Ferrous Sparkles (Relatively Speaking)
In comparison to most other metal executives at the BIR convention, buyers and sellers of scrap iron and steel—especially American delegates—were generally more upbeat. Edward Hollander of Clarendon Ltd. (Glenview, Ill.), for instance, noted that what he termed "gloom and doom" at the BIR 's meeting last fall has evolved into "unprecedented strength," mainly as a result of heavy Chinese buying begun last November. The fourth quarter also saw improved demand from Korea, Taiwan, and Japan, which boosted prices for certain ferrous grades $25 to $30 per metric ton (mt) between December and February, he added. Although the market cooled as the second quarter of 1993 got under way, demand again picked up in May, he reported.
"Very steady" domestic scrap demand was being paced by high steel mill capacity utilization rates, Hollander reported, which he estimated would approach 86 percent by midyear. At this rate, he predicted domestic steel production should exceed 92 million tons in 1993, topping last year's 91.6 million tons. Hollander also predicted that U.S. steel imports would decline this year and demand from key consuming sectors, such as the automobile industry, should improve. These factors may boost supplies of industrial scrap, but the weak flow of obsolete scrap to processors has not yet shown much buoyancy, he noted. Therefore, competition for scrap iron and steel will remain keen, keeping margins "painfully thin" at the scrap processing level, Hollander concluded.
Echoing Hollander, Crabb credited large steel orders by China for revitalizing world ferrous scrap trade in the fourth quarter of 1992. Noting that exact figures are tough to pin down, he estimated Chinese ferrous scrap imports at 300,000 to 500,000 mt in 1992. This enabled that country to produce 78 million mt of steel last year, he reported, and early indicators suggest the country's 1993 production will reach 81 million mt.
Crabb's assessment of overall Far Eastern ferrous markets suggested that demand for ferrous scrap will further improve in 1993, as will prices. In fact, he predicted a doubling of imports into China within 12 months, and noted that even if growth there were to slow, there would still be "some steam left" in other Asian markets. Adding to Crabb's comments, Ferrous Division President Anthony P. Bird of Bird Group of Cos. Ltd. (Stratford-upon-Avon, United Kingdom) called the Pacific Rim "the most important region for scrap today."
Back in Europe , EC demand for steel is expected to fall 2.5 percent in 1993, according to Gunther Giffels of Thyssen Sonnenberg GMBH (Dusseldorf, Germany). Prominent among the problems facing European steel makers and scrap suppliers is steelmaking overcapacity—there's already said to be 30 million tons of excess capacity, Giffels reported. In addition, he said, European industrial production had yet to recover from the recession, and Germany and Italy were still even looking to bottom out.
Weak economic activity coupled with "destabilizing" steel imports from Eastern Europe paint a less than bright picture of the continent for the balance of 1993, which is likely to mean less prompt ferrous scrap availability, according to Giffels. He did note, however, that scrap prices, which were relatively low in 1992, were rising in 1993, providing a positive short-term outlook.
U.S. Paper Recycling Sees Records, Problems
Paper recycling in the United States "is on a roll, and it's going to keep on rolling," J. Rodney Edwards of the American Forest & Paper Association (AFPA) (Washington, D.C.) told BIR delegates at the paper stock division meeting. Since 1985, in fact, the United States has set a new paper recovery record every year, he noted, with the 1992 total reaching 33.6 million tons, or 35 percent of paper consumed. This year, that number is expected to hit 36.7 million tons, and the U.S. industry aims to recover 42 percent of its paper by 1995, Edwards said.
As for exports, U.S. shipments of recovered paper have hovered around 6 million tons for the past four years, Edwards said, noting that the largest consumers in 1992 were South Korea and Taiwan, followed by Mexico, Canada, and Japan. The fastest growth in demand, however, is coming from less-developed countries such as Indonesia and Thailand.
In contrast, demand from Western European consumers has dropped 3.4 percent since 1982—the result of the worldwide recession as well as European paper-collection programs, which have oversupplied the market in many countries, especially Germany. Some of this extra paper has been exported from Europe, pitting it against U.S. fiber in some markets.
U.S. mills and paper packers face other concerns at home regarding economics, paper quality, and government intervention. While the cost of recovered paper has generally been low in recent years because supply has outstripped demand, that balance could be tipped when new recycling capacity comes on-line and when mills seek to rebuild their depleted inventories of old newspaper and old corrugated containers. Another supply concern is that "in some regions, we may be reaching the maximum amount that can be collected," according to Edwards. In addition, the cost of collecting recovered paper in curbside collection programs is going up, which could affect supply and boost recovered paper prices.
On quality, Edwards said that as paper recycling grows, "there will be a lot more fiber going around many more times." This could gradually degrade the fiber quality ofU.S. recovered paper, he said, making it less desirable to some domestic and, especially, foreign mills.
The most worrisome development, however, is the proliferation of recycling measures on the local, state, and federal government levels, Edwards asserted. More than 2,000 bills on paper recycling have been introduced in the 50 states on such topics as minimum content, flow control, and mandatory collection—and this is just the beginning, he warned.
Chemical Method Promoted For Recycling Thermoplastics
So much done, so much left to do. That's how David J. Doyen of Du Pont Polymers (Wilmington, Del.), summed up current efforts to recycle thermoplastics using chemical processes.
Thermoplastic polymers such as polyesters and nylons used in automotive applications have been successfully broken down, or "depolymerized," using chemical processes such as methanolysis, which can "separate out pure monomer ingredients from painted, reinforced, or otherwise contaminated polymer feed streams," Doyen said. Unfortunately, he pointed out, methanolysis doesn't work on thermosets and commodity olefinic thermoplastics such as polyethylene and polypropylene, which must be mechanically recycled, or melted—a process that can't become the most economical long-term solution, because it generally produces lower-value products due to contamination, Doyen asserted.
The prospects for chemical recycling are more encouraging because such processes are flexible enough to handle some degree of contamination, they make economic sense, and they produce a pure product that isn't limited to a single market. "For those products that can be chemically separated, or depolymerized, purified, and then repolymerized," Doyen said, "the recycling options and their lifetime economic value greatly increase." In fact, he added, Du Pont's research on depolymerization processes for polyester and nylon indicate that "the reprocessing economics can be competitive with the manufacture of polymers from virgin feedstock."
Trade Worries Persist
It was no surprise to find most BIR attendees continuing to worry about the impact of the Basel Convention on the Control of Transboundary Movement of Hazardous and Other Wastes. If the accord is internationally accepted, warned Environment Committee Chairman Patrick Neenan of AMG Resources Ltd. (Harborne, Birmingham, United Kingdom), "the current and relatively free movement of our products would be jeopardized by excessive bureaucracy and administrative costs and by denying essential raw materials to developing countries, which could so easily be used for protectionist purposes by established industrial nations."
In contrast, Neenan said the "green/amber/red" system adopted by the Organization for Economic Cooperation and Development (OECD) is "far more realistic" in that it allows 90 percent of scrap materials to be traded freely "with no restriction of movement other than that normally required for international trade between OECD countries." The system does prohibit trade between OECD and non-OECD countries, he noted, pointing out that "our industry has now to convince its member countries to conclude bilateral agreements with countries that receive a lot of our products, like Korea, Taiwan, Pakistan, India, Malaysia, Indonesia, and China."
Another cause for concern is the fact that the EC council is considering proposals and directives on civil liability for damage caused by waste, packaging and packaging waste, and more. "Whilst our products are regarded as and described as waste in legislation, regulated or not," Neenan said, "we will continue to attract the unwelcome and totally unwarranted attentions of well-meaning but ill-informed organizations."
In keeping with these concerns, international management expert Robert W. Jerome of the University of Maryland (College Park, Md.), asserted that trade policy makers and environmentalists must find common ground if they are to help their countries find the optimum level of sustainable development and competitiveness.
"Trade policy makers must understand that the environmental movement, largely consumer-driven, is here to stay" and they, therefore, "ignore environmental issues at their own peril," Jerome said. Environmentalists, on the other hand, must sharpen their priorities, reach a broader consensus, and realize that economics and trade can work in their favor. As proof, Jerome noted that "industries, pressed by rising costs of energy, materials, and capital, and struggling to survive intense competition, create products through technological advances that use lighter, more-durable materials, require less energy to produce, and pollute less. ... Such a trend makes for more efficient and competitive national economies."
Ultimately, trade officials and environmentalists must agree that they don't have to choose between a growing economy and a healthy environment. "Environmental concerns are now a strategic part of today's business decisions," Jerome said. "From raw materials to marketing, today's marketplace is entwined with the environment. Growth need not contradict environmental sustainability: Today's realities demand both."
The Minimill Promise
New steelmaking technologies promise to provide growing opportunities for ferrous scrap—as well as alternative raw materials, according to Dick Jaffre of Chaparral Steel Co. (Midlothian, Texas), who spoke at the BIR 's ferrous session on the future of minimills.
With most long-term steel demand forecasts pointing to low growth, many market analysts believe that industry attention will—and already has begun to—shift away from market development efforts and toward competition for market share. Minimills in particular have already captured significant low-value-added niche markets from the integrated mills. With the aid of new flat-rolled technology, minimills are now also poised to compete in markets for higher-quality flat-rolled products.
Jaffre's detailed presentation analyzed the role and economic position of scrap as well as hot briquetted iron, iron carbide, and the COREX process in the battle for these higher-value markets, basing his analysis on an assumption that 10 million mt of thin-slab steelmaking capacity will be added to the U.S. domestic market by 2000. He predicted that despite the use of alternative electric-furnace feedstocks, changes in steel making technology that will largely replace processes that relied almost exclusively on iron ore will, in fact, permit greater use of ferrous scrap.
—Elise R. Browne, Robert J. Garino, and Kent Kiser
International recycling executives recently met to consider economic and regulatory forces facing secondary materials markets. Although the news was generally gloomy, some saw signs of potential improvement down the road.