BIR Madrid: Global Highs & Lows

BIR’s spring convention had several high points—including the first BIR/ISRI joint symposium—though the meeting’s market reports had more than their share of lows.

By Kent Kiser

Kent Kiser is editor and associate publisher of Scrap. 

The spring convention of the Bureau of International Recycling (BIR) (Brussels, Belgium) was notable for more than just its setting in Madrid, Spain’s beautiful and vibrant capital city.
   The event, held May 21-23, attracted more than 650 delegates from 44 countries—the largest number of countries represented at any BIR convention. Plus, the convention featured the first joint symposium between BIR and one of its member federations—in this case, ISRI. (For details on this event, see “Around the Steel World in a Day” on pages 72-73.)
   In addition to this historic symposium, the BIR convention included an array of special workshops—on topics from international contracts to radioactive scrap—as well as global market reports on key scrap commodities.

Ferrous Fights for Its Life
U.S. steelmakers have been hit hard by the slowing U.S. economy, slack demand for most steel products, and significant amounts of imported steel, which have driven U.S. steel production rates below 80 percent, reported Robert Philip of Schnitzer Steel Products Co. (Portland, Ore.).
   The U.S. steel industry has responded by filing anticompetitive petitions with the federal government to limit steel imports, Philip said, though he noted with irony that these are the same companies who are importing record quantities of ferrous scrap and scrap substitutes.
   For U.S. ferrous scrap processors, the strong U.S. dollar has been a major constraint on export sales. Another problem is that the Asian market has been showing signs of weakness, with purchases of U.S. ferrous scrap limited to only a few countries, Philip said.
   Though U.S. steel production could recover some in the second half, power shortages throughout the summer could mean excessive electrical rates, higher natural gas prices, and further production cuts, he noted.
   This year could also see the unraveling of some scrap industry consolidators, Philip said. If that happens, “we might see the beginning of normal scrap flows throughout the world from the United States” beginning next year. In the longer term, he stated, ongoing U.S. investments in other countries could have a detrimental effect on U.S. scrap arisings.
   For now, though, the market prospects are bleak. “In Europe, we’ve seen the concern about end-of-life vehicles,” Philip said. “In the United States, I think we’re going to see end-of-life of scrap dealers.”
   Europe: Life hasn’t been nearly so bad for European steelmakers and ferrous scrap processors. European crude steel production reached 200 million mt in 2000, demand for scrap remained high, and scrap supplies were ample, said Tony Bird of Simsmetal UK Ltd. (Stratford-upon-Avon, England). European scrap processors also exported around 6.9 million mt of ferrous scrap last year, he noted.
   Though scrap prices decreased in the early months of 2001, solid steel production has stabilized the market, Bird said. The second half of 2001 “will be much along the same lines with no dramatic changes, although prices will possibly harden in the last quarter,” he added. Overall, “it is not as good a year as last year, but it will, for many processors, not be as bad as expected.”
   Germany, the largest European steel producer, enjoyed good capacity utilization last year, with raw steel production rising to a record 46 million mt, 42 percent of which was made from scrap, reported Björn Voigt of Thyssen Sonnenberg Recycling GmbH & Co. (Duisburg, Germany). German steelmakers expect 2001 production to almost match last year’s record, which will mean continued strong demand for ferrous scrap, especially high-quality material.
  In the United Kingdom, liquid steel production totaled 15.2 million mt in 2000—the lowest figure since 1986 and the third consecutive year of decline, said Colin Iles of European Metal Recycling Ltd. (Salford, England). The strength of the British sterling, high energy costs, and the U.K.’s Climate Change Levy have forced many U.K steel and foundry operations to close.
   This lower steel production, combined with the static U.K. steel demand of about 14 million mt a year and growing U.K. steel exports (7.2 million mt in 2000), will increase the country’s need for imported steel, Iles said. In 2000, the United Kingdom imported 6.4 million mt of steel, representing 47 percent of the U.K. market.
The declining U.K. steel production will also make the country a larger net exporter of ferrous scrap. In 2000, the country exported 4.4 million mt of scrap and consumed 4.3 million mt domestically, but this balance will shift more toward exports in the future, Iles asserted.
   In Russia, total scrap collections reached 19.7 million mt in 2000, up 16 percent from 1999, reported Igor Kuzmin of MAIR (Moscow). Still, last year’s collections account for only about 73 percent of Russia’s total scrap supply of 27 million mt.
   Of the 19.7 million mt of scrap collected last year, Russia exported 7.9 million mt, 6.5 million mt of which was shipped outside the C.I.S. region—down 6 percent compared with 1999, Kuzmin noted.
This year, the Russian scrap market will be influenced by decisions on three issues: new licensing conditions for scrap companies; limitations on scrap exports through the western border; and export taxes, Kuzmin said.
   Asia/Pacific: China—whose steel production grew 8.7 percent in the first quarter—has been the only star performer in this region, said Kumar Radhakrishnan of Simsmetal Ltd. (Sydney, Australia). To feed this production, China imported 1.9 million mt of ferrous scrap in the same quarter. The country also imported about 4 million mt of finished steel and 2.3 million mt of billets and other semifinished steel products. China’s imports are expected to decline in the second quarter, however, due to a lack of import licenses and the government’s interest in controlling production, possibly limiting it to 115 million mt for the year, Radhakrishnan said.
   India has also had a steady need for ferrous scrap—mostly from Europe and the United Kingdom—due, in part, to a domestic shortage of DRI, which is expected to continue.
   Other Asia/Pacific countries have shown little strength. A slowdown in steel imports by the United States and Europe has had “a direct effect on the steel production and scrap demand in the Asia/Pacific region,” Radhakrishnan said. The result has been some “serious volatility” in the market in the past six months and a sharp decline in scrap prices to about $105 a mt in Korea.
   Though Korea imported around 1.5 million mt of scrap in the first quarter, its year-end imports are expected to be off 10 percent from last year, he noted. Despite decent domestic demand for bars, Korean demand for flat products is weak, which is diminishing its need for scrap, with some mills temporarily halting their scrap imports.
   In Taiwan, steel demand has been depressed, leading most of its minimills to consume only domestic scrap and small quantities imported from Japan, Radhakrishnan said. Some Southeast Asian countries, meanwhile, have purchased deep-sea scrap cargoes despite problems such as industry restructuring and rationalization, political uncertainty, lack of government spending, and weakening exchange rates, he noted.
   Two important factors in the Asia/Pacific market are the tight supply of pig iron and the scrap-export restrictions in Eastern Europe, which could bolster scrap prices in the Asia/Pacific region in the next few months, Radhakrishnan forecast.
   Japan’s economic picture remains bad. Though the country’s crude steel production rose 13 percent last year to 106.4 million mt, that growth was driven by a “hefty export drive to Southeast Asian countries” rather than domestic demand, said Sadao Taya of Shinsei Co. Ltd. (Osaka, Japan). Production cutbacks after last summer, however, created a big scrap surplus that is still depressing domestic prices. As a result, the “only solution available is to export,” Taya said. According to his figures, though, Japan’s scrap exports declined almost 33 percent from 4.3 million mt in 1999 to 2.9 million mt in 2000. The main cause of Japan’s steel woes is overcapacity, Taya said, adding that mergers among several Japanese steel producers could improve the situation.
  Turkey, which has been battling a recession, made 14.3 million mt of crude steel in 2000, with its production in the first quarter of 2001 rising 12 percent compared with the same quarter last year to 3.62 million mt, said Mehmet Gültekingil of Tekso Metal Industry and Trade Ltd. Corp. (Istanbul).
   On the scrap side, Turkey imported about 7.2 million mt in 2000, with C.I.S. countries supplying almost 50 percent of that tonnage, 1.7 million mt coming from EU countries, and 1.2 million mt from Romania, Gültekingil reported. Turkey’s scrap demand should remain strong to meet its expected record-high levels of steel production and export demand this year due to the “drastic recession” in its domestic market.

Nonferrous Going Nowhere
At the nonferrous division meeting, Ashwini Singhal of Singhal Commodities Ltd. (Mumbai, India)—one of the division’s vice presidents—presented a consolidated report on global nonferrous markets.
   In the United States, the news continues to be gloomy, with reduced demand in most nonferrous industries.
In the copper and brass sectors, brass mills, tube mills, and ingot producers have reduced their purchases, with some exiting the market for extended periods.
   The aluminum market has at least stopped declining. Capacity utilization has improved at primary mills, leading to a steadier rate of purchasing, though at lower-than-normal levels. Still, primary grades of scrap are in balanced supply.
   After a decent first quarter, U.S. secondary aluminum smelters have noted a downtrend in orders, leading them to reduce their scrap buying prices in line with ingot prices. These lower scrap prices have led to some supply-chain breakdowns.
   The Asia/Pacific markets have been affected by the sluggish U.S. economy, increased production by Chinese mills, and weak exchange rates and market prices, which have pulled down industrial production. Though Chinese purchases of copper scrap grew 17 percent in the first quarter compared with the same period last year, the country’s imports of aluminum scrap fell 16 percent.
   In India, the government’s ongoing globalization policies have created tough market conditions for the country’s industrial sector, which has operated under protectionist policies for decades, Singhal said. There’s hope in the form of promised increases in government spending on infrastructure and rural electrification projects as well as structural reforms in core industries. Given this scenario, copper and brass scrap is expected to remain in short supply, while demand for aluminum scrap could increase, driven in part by rationalization of the automotive sector. The Indian government continues to maintain that a 6-percent economic growth rate is achievable this year, Singhal said.
   In Europe, a major market factor has been the decline in scrap supplies from Russia and other C.I.S. countries. Low LME prices have also prompted peddlers to reduce their scrap collections and processors to hold material in hopes of better prices. The scrap markets have, as a result, seen tightening supplies, smaller margins, and more sensitive prices. European consumers, meanwhile, have been focusing on trimming production and reducing inventories of both scrap and finished products.
   The U.K. market remains depressed, with the nonferrous industry continuing to shrink. Layoffs and plant closures have been commonplace, and the remaining consumers have been using and generating less scrap. Notably, the U.K. nonferrous industry has shifted from being a net importer to a net exporter. Pushing this trend has been the strength of the British sterling compared with the euro and other European currencies and its weakness against the U.S. dollar, which has boosted U.K. exports to the Far East.

Stainless Takes a Wild Ride
The stainless scrap market has been on a wild roller-coaster ride since last fall, with dramatic shifts in supply and demand,   noted speakers at the stainless steel and special alloys committee meeting.
   United States: As of last November, demand for stainless scrap from U.S. producers had basically disappeared. Beginning in April 2001, though, the market became one defined by “very tight” scrap supplies and “significantly increased consumer demand,” noted BIR President Barry Hunter of Keywell L.L.C. (Elizabeth, N.J.).
   Sizable exports of U.S. stainless scrap—around 40,000 to 45,000 tons a month—and the slowing U.S. economy, which reduced scrap generation, combined to tighten scrap supplies. A rapid rise in the LME nickel price also reduced scrap availability by prompting many processors to hold material, Hunter said. Plus, the continued strength of the high-temperature alloy business has meant less nickel, chrome, and molybdenum units available for blend programs.
   The tight scrap situation has “finally required our U.S. consumers to increase pricing to expand territorial buying opportunities as needed to compete with continuing offshore activities,” Hunter said. This shift away from the export market could be significant for the balance of the year.
   The big supply-and-demand question in the U.S. market is: What will happen when North American Stainless (Ghent, Ky.) opens its melt shop later this year, adding 800,000 tons of production capacity—and significant scrap demand—to the already-tight market? “Who knows,” Hunter stated, “maybe the U.S. will become an importer of stainless steel scrap.”
   Europe: Similar to the United States, the European stainless market ended 2000 on a down beat, with production cuts in the third and fourth quarters resulting in lower stainless scrap prices and plentiful supplies. Declining LME nickel prices also translated to reduced volumes of reclaimed stainless scrap.
   Beginning in the spring of 2001, however, European stainless producers began boosting their demand for scrap 3 to 5 percent, which has created a “severe scrap shortage,” said Stainless Steel & Special Alloys Committee Chairman Michael Wright of ELG Haniel Metals Ltd. (Sheffield, England).
   Explaining this market shift, Wright noted that Europe was an exporter of stainless scrap in the first quarter of 2001, which tightened the European scrap supply. Also, the rising demand from U.S. stainless producers and strong interest in U.S. scrap from the Far East made exports of U.S. scrap to Europe increasingly difficult. Also, scrap shipments from Eastern Europe have been dramatically reduced due to export regulations and tariffs.
   As a result, many European stainless producers have had to decrease the use of scrap in their charges—from 40 to 30 or 32 percent—and buy more primary nickel and chrome, which has led to a strong recovery in the LME nickel price and some holding of material by processors, adding to the tightness of scrap, Wright said. This scrap situation will also result in a reduction of the discounts of nickel in scrap.
   According to Wright, worldwide stainless scrap availability could fall 700,000 mt—or 13 percent—this year. In Western Europe, he noted, scrap supplies could decline from 1.8 million to 1.5 million mt this year. In Eastern Europe, scrap supplies could slip from 800,000 to 600,000 mt, though this decrease could be “dramatically increased and even doubled” depending on Russia’s decisions regarding its scrap exports, Wright said. 

The Essential Need for Lead Recycling
The lead industry places “overwhelming importance” on the use of lead in batteries, said Francisco Román Ortega of Union de Industrias del Plomo (Madrid). In the Western World, for instance, 70 percent of lead is used to produce batteries. “My point is that lead has become almost single-purpose,” he stated. The danger with that is that “if somebody comes along and invents something that can replace the lead battery, lead will be done for.”
   Currently, though, there is no viable replacement for lead batteries, thanks to their reliability, low cost, and high recyclability, Román said. As a result, the lead battery still “has a long life ahead.”
   Future world lead demand could conservatively reach about 6.6 million mt in 2005 and 6.9 million mt in 2010, Román forecast. At those demand levels, mined lead supplies will fall short and, thus, “lead recycling is absolutely essential.”

BIR/ISRI Symposium—Around the Steel World in a Day
May 21 was a historic day for BIR and ISRI. On that day, the two associations held their first joint symposium on the theme “Global Steel and Ferrous Recycling: Innovative Opportunities for Mutual Development and Growth.”
   The symposium’s goal was to foster an open discussion between scrap processors and consumers, addressing issues of common concern. As BIR President Barry Hunter of Keywell L.L.C. noted, “Like it or not, the fate of consumers and processors is linked in ways that require us to seek new and creative ways to work together.”
   The one-day symposium, which attracted more than 140 attendees, was divided into three sessions—two on the challenges and trends in the global steel and scrap sectors, and one described as a consumer/processor dialog.

Session One: Creative Solutions to Global Steel Challenges
   • Pros and Cons of Consolidation. Since 1992, steel-industry consolidation has been a “very European affair,” with 29 of 35 mergers involving European steelmakers, said Patrick Genevaz of Paris-based ABCD Consulting. The main reason for consolidation is the “necessity of growth,” he noted, explaining that “once a market is mature, growth becomes much more difficult.” Mergers among some of the steel industry’s major customers—such as automakers—have also prompted steel companies to join forces.
   Advantages of mergers can include restructuring and streamlining of operations, which can lead to efficiency improvements. Other supposed advantages such as economies of scale, specialization, and globalization don’t always materialize, however, Genevaz said. Mergers can, however, give steelmakers more clout with their suppliers—such as scrap processors. But the impact of steel-industry consolidation on scrap prices will remain limited due to various characteristics of the scrap market, he noted.
   As for drawbacks, consolidation tends to increase overhead costs, reduce innovation, and pose corporate cultural challenges. Most important, consolidation rarely leads to improved profitability. “Hopefully, excessive concentration will not increase the entry cost and limit innovation,” Genevaz said. “Otherwise, concentration could be the dawn of a further decline of the steel industry.”
   • Scrap ‘Scarcity’ Ahead? If global steel production continues to grow steadily, “we will witness a scarcity of scrap,” predicted Juan José Aroztegi of Spanish steelmaker Aceralia S.A. The inelasticity of ferrous scrap supplies will become a restrictive factor as scrap-fed electric-arc furnaces (EAFs) assume a larger share of world production. If scrap can’t meet the growing EAF demands, “that will force steelmakers to use more virgin iron units,” he said, adding that “as the globalization trend continues, we will see how scrap supply becomes more inelastic.”
   Aroztegi also noted the dramatic changes in the scrap import/export balances in Europe and the United States. In 1999, Europe exported around 22 million mt and imported 23 million mt of scrap, making it a net importer of about 1 million mt, he reported. Though the United States remains a net exporter of scrap, its shipments have declined significantly from abut 10.4 million mt in 1995 to 5.5 million mt in 1999 while its imports increased from 2.1 million to 3.7 million mt, Aroztegi said.
   • Know Your Market. The downturn in the steel and ferrous scrap markets has lead to more than 19 bankruptcies, abrupt declines in share value, lower product sales and prices, and lower scrap prices, said John Harris of Ispat North America Inc. (Chicago). To illustrate the “abrupt value loss” for scrap processors, he offered this example: If a processor was selling 100 tons at $100 a ton, he earned $10,000. If the quantity and selling price declined 25 percent to 75 tons at $75 a ton, that translated to almost a 50-percent reduction in revenue for the processor at $5,625.
   Reviewing steel and scrap market issues, Harris noted that steelmakers decide which raw materials to use largely based on “value-in-use”—that is, a material’s metallurgical and operational value in the melt compared with its cost. In that regard, ferrous scrap competes against virgin metallics such as DRI, HBI, and pig iron. Currently, global steel production requires about 220 million mt of ferrous scrap. With the scrap-fed EAF steel production growing steadily, “the scrap business is going to have a difficult time supplying that marketplace,” Harris asserted.
   Today, scrap is a “liquid, dynamic product” that can go anywhere, he said, noting that for $10, processors can ship 1 ton of scrap 50 miles by truck, 500 miles by railcar, 1,500 miles by river barge, and 3,000 miles by ocean vessel. This mobility can spell trouble for some processors. “If you’re landlocked,” Harris said, “you could wake up tomorrow and find out that you can’t do business because it’s coming from left field. You weren’t watching.”
   To survive in the scrap business, processors must keep up with market changes around the world. “There’s a dynamic market out there, and it’s a dollar-based, knowledge-related market,” Harris said. “What you know makes you money.”

Session Two: Overcoming Barriers to Global Market Challenges
In addition to a report on the importance of the Russian scrap market by Igor Kuzmin of MAIR (see page 70 for details on his report), the second session examined U.S. scrap market trends and international business risks, including currency issues.
   • U.S. Needs Supply, Bankruptcy Changes. The U.S. scrap market is the worst since 1982 and perhaps the worst ever given the credit problems of U.S. steel mills, said Allan Goldstein of AMG Resources Corp. (Pittsburgh).
   Though demand for scrap has been respectable thanks to growing U.S. steel production, there have been many problems on the supply side. For starters, U.S. scrap exports have declined substantially due to the strong dollar and displacement by scrap shipments from Black Sea ports, Goldstein noted. The U.S. scrap market has also been affected by increased imports of scrap, pig iron, and both finished and semifinished steel. Notably, imported steel has not only depressed scrap demand but also added at least 1.5 million tons of scrap to the domestic supply, he explained.
   Turning to the “credit-unworthiness” of U.S. steelmakers, Goldstein asserted that the lenient bankruptcy laws in the United States are a problem. “Bankrupt companies are allowed to continue, minus a large portion of their debts, and unfairly compete with other non-bankrupt companies,” he said. Also, the same managers who steered a company into bankruptcy are often allowed to remain at the helm. In Goldstein’s view, “Weak inefficient mills should be allowed to die. Something ought to be done.”
   Another problem is the weak financial position of many U.S. scrap industry consolidators, which has prevented them from holding material in the weakening market to help shore up prices, Goldstein said.
   Change will only occur if there are supplyside improvements, such as limitations on steel imports, he said, adding that a weaker U.S. dollar is also needed to increase U.S. steel and scrap exports, cut imports of finished and semifinished steel, and reduce imports of scrap and scrap substitutes.
   • Changing International Trade Dynamics. Before entering the international trading niche, scrap companies should know the political and financial standing of the specific regions, the position of their regulatory agencies regarding scrap imports and exports, and the legal protections for foreign companies selling or purchasing scrap in these areas, advised John Neu of Hugo Neu Corp. (New York City).
   After noting that the U.S. dollar is the universal currency in global scrap trades, Neu pointed out that U.S. scrap sellers don’t have to worry about currency fluctuations and have no need to hedge. For them, the strength of the dollar has been the largest impediment to U.S. scrap exports in recent years. Non-U.S. traders, in contrast, must worry about fluctuations in exchange rates and, hence, face a considerable cost in hedging, Neu said.
   Transportation costs are a key component of the scrap export market, he noted. Higher oil prices, fluctuations in freight rates, and preferences by shipping companies for cargoes other than scrap are causing serious chartering delay problems, Neu said. These delays can effect VAT recoveries and have an effect on currency costs because hedges must be extended at significant cost.
   Other changes in international scrap trade include longer, more complex contracts, as well as greater concerns about political risks, export controls, changes in government, and disagreements between governments, Neu said. There can also be difficulties in the issuance and receipt of letters of credit.
Solving international trading problems requires goodwill, knowledge of the customer, and “an enormous amount of work and patience,” Neu stated.

Session Three: Consumer/Processor Dialog
This final session of the BIR/ISRI symposium was an open discussion among scrap processors and consumers from the United States, Europe, and Asia/Australia. The dialog, moderated by Albert Cozzi of Metal Management Inc., kicked off with remarks from the seven panelists—Dick Jaffre of TXI Chaparral Steel; Bob Philip of Schnitzer Steel Products Co.; Kumar Radhakrishnan of Simsmetal Ltd.; Mehmet Evinç of Ferme Mümessillik & Dis Ticaret ; Guy Amedro of Usinor S.A.; Jean Burnod of CFF Recycling; and Björn Voigt of Thyssen Sonnenberg Recycling GmbH & Co.
   The session then became a question-and-answer forum among the panelists and the audience.

The Importance of Stainless Scrap 
In the past few decades, stainless steel production has risen an average of 4.5 percent a year while stainless prices have declined 2 percent annually, noted Rafael Garvin Salazar of stainless producer Acerinox S.A. (Cadiz, Spain).
   This decline in stainless prices, he stated, has been the “driving force of the continuous increase of stainless consumption all over the world,” while the metal’s corrosion-resistance, mechanical properties, low maintenance, and longevity make it “a material with a high potential market for the future.”
   Predictions call for continued growth in consumption of cold-rolled flat products, with CRU International forecasting annual growth of 4 to 5 percent, Garvin said. Such predictions “will depend very strongly upon the quantity of new capacity that is brought onstream,” he warned.
   In the future, stainless scrap will continue to be one of the main raw materials in stainless production for economic and conservation reasons, Garvin said. For stainless producers, the big issues related to scrap are:
• Chemical composition and tramp elements such as copper and tin;
• Metal yield or scrap purity, which focuses on minimizing the amount of nonmetallic components in scrap, which lower steel output;
• Geometry and size. To reduce production costs, stainless producers must optimize scrap-loading technology by using high-density scrap, placing heavy scrap at the bottom of the furnace to avoid electrode breaks, adding light shot scrap near the top, and mixing turnings with heavier scrap to obtain sufficient wall protection without losing a high melting rate;
• Dangerous items in scrap loads such as ammunition and closed containers that could cause an explosion; and
• Radioactive contamination.