January/February 2006
After surviving some “shocks” and “corrections” last year, many scrap and commodity markets seek new direction and renewed life in 2006, as speakers at BIR’s fall meeting noted.
By Robert J. Garino and Kent Kiser
Perhaps it was inevitable. After the heady, memorable days of 2004, scrap and commodity markets seemed destined to moderate in 2005. Some experienced larger “corrections” than others, of course, but all were tested by various “shocks” throughout the year—from weather-related devastation to record energy prices to geopolitical strife, and more. While many nonferrous metals showed impressive price strength late last year, other markets—notably stainless and paper—were less fortunate.
At the October meeting of the Bureau of International Recycling (BIR) (Brussels, Belgium), held in Milan, Italy, international scrap executives seemed to be smiling less and worrying more as they tried to make sense of the swirling factors affecting the global commodity markets. Speakers wondered whether the markets were simply pausing, awaiting a second (or third, or fourth) wind, or whether they were slipping from their lofty perches for a while.
Here’s a report on the views offered for the ferrous, nonferrous, stainless, and paper markets, with a special look at a new, high-tech plastic recycling venture in China.
Ferrous Faces Uncertainty
There is a “high level of uncertainty” in the world steel market due largely to the risk of overproduction by China, said Antonio Gozzi of the Duferco Group (San Zeno Naviglio, Italy), who reviewed the global steel market at the ferrous division meeting.
China’s steel production, Gozzi noted, has grown from 129 million mt a year in 2000 to a projected 350 million mt in 2005, a year that saw China become a net steel exporter. Another potential threat is India’s emergence as a large steel producer and exporter on the global market. According to Gozzi, Asia will account for 60 percent of world steel demand by 2010, bringing with it a prolonged period of tightness for steelmaking raw materials. In other words, he said, “the age of cheap scrap is finished once and for all.”
Looking at 2006, Gozzi forecast “slight” downward changes in raw material prices, though ferrous scrap will likely remain above $200 a gross ton. Steel producers, meanwhile, will face the greatest risk and price volatility in long products this year rather than flat products.
Europe: Crude steel production in the 25 European Union countries totaled 96.5 million mt in the first half of 2005, down 1.7 percent compared with the same period in 2004, said Anton van Genuchten of TSR Recycling GmbH & Co. KG (Bottrop, Germany). This marked the first decline in EU steel production in five years. Italy and Spain were the only EU members with higher year-on-year production, while Luxembourg, Poland, the Czech Republic, and France posted major declines, he noted.
EU ferrous scrap consumption was also believed to be lower, with Van Genuchten estimating the first-half total at about 50 million mt—or 3 percent less than comparable 2004 figures.
In terms of scrap trade, the EU exported 4.4 million mt of ferrous scrap in the first half of last year and imported 4.1 million mt, yielding an export surplus of 300,000 mt, Van Genuchten said. India and Turkey were the largest buyers followed by the United States, China, Switzerland, South Korea, and Indonesia. On the supply side, Russia continued to be the largest EU scrap exporter, shipping 2.2 million mt through last June.
As for ferrous scrap prices, price volatility was an ongoing feature in 2005, though near-term prospects offered more upside potential than downside despite “nervousness” in the market, Van Genuchten said. As evidence, he cited anticipated higher steel production in the months ahead along with winter weather concerns that could reduce scrap supplies.
United States: John Neu of Sims Newco (New York City) also noted price volatility in the U.S. scrap market, observing that growing global steel production has affected the supply-and-demand balances for all steelmaking raw materials.
U.S. ferrous scrap prices firmed in October following an initial decline that, Neu said, was due to an overreaction to the large price increases in August. Prices were expected to continue firming in November, possibly rising $30 a gross ton or more. Higher prices, he stated, would restore collection rates as consumers look toward the winter season. This consideration, coupled with “numerous transportation problems,” could prompt mills to buy long for November and beyond.
While conditions in the U.S. market “appear basically favorable,” Neu cautioned that energy costs and steel exports from China remain potentially disruptive factors.
Russia and Ukraine: Picking up on the China theme, Denis Ilatovsky of Mair Joint Stock Co. (Moscow) said China’s booming steel market caused the “unusual and disbalanced” year regarding scrap prices.
Due to the high export duties in Ukraine, that country’s shipments of ferrous scrap have decreased significantly, dropping to 1.2 million mt in 2005 compared with 5.5 million mt in 2000, Ilatovsky reported. Thus, more than 4 million mt of Ukrainian ferrous scrap has been essentially “lost” to potential export consumers.
Russian scrap collections, meanwhile, were projected to end 2005 at about 30 million mt, up 8 percent, according to Ilatovsky. Shipments to Russian consumers in the January-September period were 12.4 million mt, he noted, while Russia’s scrap exports in that period totaled about 10.3 million mt.
Nervousness in Nonferrous
Europe: Offering a summary of nonferrous markets in the European Union, Carmelo Paolucci of Trentavizi Srl (Orvieto, Italy) reported that aluminum scrap prices had risen only marginally last fall despite an increase in LME aluminum prices. Fortunately, there was increased interest in scrap from secondaries, which were meeting orders from die casters that had waited until September to fill their metal requirements.
Compared with aluminum, copper was “the superstar of the nonferrous market,” Paolucci said, marveling at the red metal’s “abnormal and unstoppable progress.” The market, he explained, was defined by high LME copper prices—driven by fund speculation—as well as a dearth of available scrap and, hence, higher scrap prices. In the face of strong demand from European and Asian consumers, processors had many options for selling their material. Though European copper refiners were operating at full capacity, their margins were tight due to high raw material prices, Paolucci noted. While many expect copper prices to remain strong, “there are some rumors that say this could be the calm before the storm,” he warned.
Like copper, brass has been in scarce supply and hot demand, in part because scrap supplies from Eastern Europe have been diverted to Asian markets, Paolucci explained. European smelters simply couldn’t match the prices offered by overseas buyers. In Italy, he noted, smelters started buying directly from smaller processors, paying higher prices than larger processors with export commitments. This disrupted the market equilibrium, Paolucci said, and led to “foolish” price increases by larger scrap processors who needed material to meet their export contracts.
In the lead market, European demand was stable in 2005, with lead finally becoming a “workable export item” from Europe to Asia thanks to higher prices, Paolucci said.
As for nickel, its declining prices were caused by two main factors—shifting investment priorities among commodity funds and lower stainless production, he said. The dip in the stainless market led to a 30-percent dip in demand for stainless scrap as well as a 30-percent decline in 18/8 scrap prices, Paolucci reported.
Russia: Russia’s nonferrous industries continue to grow, with aluminum production increasing 2 percent annually and copper production rising 1.5 percent, thus increasing the demand for scrap, said Ildar Neverov of Torgmet Ltd. (Moscow).
Unfortunately, he noted, Russian scrap processors can’t export their material due to high customs duties on such shipments, which total 50 percent for copper and aluminum scrap and 30 percent for nickel, lead, and zinc scrap. These duties are designed to protect Russian nonferrous producers and ensure that they have adequate domestic scrap for their production. Russia has modified the duties on some semifinished products, reducing the duty on secondary aluminum alloys from 10 to 3 percent and eliminating the duty on nickel alloys.
One notable change for Russian scrap processors is that, as of Jan. 1, 2006, their operations will be exempt from paying the value-added tax (VAT). The government is making this change in an effort to reduce fraud in the VAT system. This change will reduce domestic scrap prices by about 18 percent—a favorable development for Russian scrap consumers—though the consequences for Russian scrap recyclers could be less favorable, Neverov stated.
China: The ongoing growth of China’s manufacturing sector has ensured “very strong” demand for all metals, especially copper scrap even though the LME copper price exceeded $4,000 a mt, said Ben Lee of Alco Resources Ltd. (Nanhai, China). As of last fall, discounts for No. 2 copper scrap were steady, with Birch/Cliff being quoted at $3,700 to $3,750 a mt. Brass and low-grade materials like copper cable were experiencing similar growth in demand and prices.
Aluminum grades such as Zorba, meanwhile, were showing “marginal improvement” thanks to growth in the Chinese automotive industry and the “anticipated increase in export orders,” Lee said. In contrast, high-grade aluminum scrap wasn’t faring as well due to plentiful supplies of primary aluminum in the Chinese market. Similarly, stainless scrap was suffering from overproduction.
“While the underlying fundamentals in China continue to remain strong,” Lee summed up, “the situation needs to be closely watched.”
United States: The two major hurricanes that hit the United States last fall created many transportation challenges, including a short supply of trucks, said Robert Stein of Alter Trading Co. (Grand Rapids, Mich.). Fuel surcharges have made some business “very difficult to put together, and the costs of doing business have increased accordingly,” he stated.
In addition, the price of natural gas has increased at a faster pace than even petroleum prices, putting significant pressure on secondary aluminum smelters, which use natural gas in their melting operations, Stein explained. Smelters are also facing higher transportation costs and “significant issues” among their major consumers in the North American automotive industry. These factors have put aluminum scrap prices under pressure.
In general, U.S. nonferrous scrap markets “are supported almost in full by hedge funds and, in the case of copper, a lack of material being available,” Stein said, noting that he would expect those trends to continue.
Going forward, post-hurricane reconstruction activities will be positive for many business sectors, such as primary aluminum rolling mills and copper wire and cable manufacturers, Stein noted. That, coupled with rising interest rates and other factors, will “make our business quite interesting and a little challenged in the first half” of 2006.
A Stainless Slowdown
World stainless steel production was on track to reach 25.4 million mt in 2005, which would represent an increase of 2.4 percent from the 2004 production of 24.8 million mt, according to Heinz Pariser of Heinz H. Pariser Alloy Metals & Steel Market Research (Xanten, Germany) at the stainless steel and special alloys committee meeting. In 2006, he projected, global stainless production will strengthen, posting year-on-year growth of about 6 percent.
Not surprisingly, Asia has been the driver behind the stainless market. Asia’s stainless steel production has grown from less than 6 million mt in 1995 to 12.4 million mt in 2004, giving it a 49.5-percent share of global production, noted Michael Wright of ELG Haniel Metals Ltd. (Sheffield, England). By 2015, Asia’s stainless production could reach 31 million mt—or 63 percent of projected world output, he added.
In terms of stainless demand, Asia is also surging, accounting for 55 percent of world usage. Already, China is “by far the largest stainless steel user in the world,” with annual demand of 5.3 million mt, he said.
On the scrap side in 2004, Asia had local supplies of 2.6 million mt, imports of 1.4 million mt, and exports of 500,000 mt, giving it an overall stainless scrap demand of 3.5 million mt, Wright reported. By country, China’s stainless scrap demand was just over 1 million mt in 2004 followed by Japan at 893,000 mt, South Korea at 799,000 mt, Taiwan at 551,000 mt, and India at 198,000 mt. By 2015, Asia’s stainless scrap requirements could reach 8.6 million mt, he said.
Looking more closely at China, Wright noted that its stainless output is expected to grow from 2.8 million mt now to more than 8 million mt by 2010 and possibly 14 million mt by 2015. “China’s main handicap is the shortfall of stainless steel raw materials,” he asserted, pointing to its limited supplies of primary nickel, chrome, and domestic scrap. By his calculations, China’s domestic stainless scrap availability could rise from about 900,000 mt today to 2.9 million mt by 2015 against its projected scrap consumption of 4.5 million mt, yielding a scrap shortage of 1.6 million mt—material China will have to import.
One major concern in the future is the growing amount of chrome-manganese and chrome-manganese-copper grades in the stainless scrap mix. Those grades “are really poisonous when they enter the recycling loop,” Wright said, asserting that “unless we find an efficient technique of separation at source, the scrap reserve will be severely contaminated. Blending techniques will assist, but due to the high manganese and copper levels, this may be dangerous.”
Europe: Compared with Asia, the European stainless market has been lagging. Though European stainless production increased 4.2 percent in the first quarter of 2005 compared with the same period in 2004, it declined on a quarter-vs.-quarter basis for the remainder of the year, reported Stainless Steel & Special Alloys Committee Chairman Sandro Giuliani of Giuliani Metalli SAS (Milan). Europe’s projected 2005 stainless production of 9 million mt represents a 4.5-percent decrease compared with 2004 production. “It is surprising to note that most production cutbacks have occurred just in Europe,” he said.
Aside from production cutbacks, the European stainless scrap market has been affected by other factors, including:
- the ongoing shift to ferritic grades and other low nickel-content grades of stainless;
- diminished export options to China, which usually serves as a “pressure release valve” for scrap processors; and
- contracts signed a year ago by stainless producers to ensure their primary nickel needs. “Now, these contracts seem to be onerous,” Giuliani said, “but they must be observed even if they are no longer justified by current stainless steel production.” In response, European stainless producers have reduced their scrap purchases.
These and other factors resulted in a drop in scrap demand, a decline in scrap prices, difficulty selling scrap, and, hence, a buildup in dealer inventories. “We are now experiencing a phase characterized by a surplus of scrap supply compared to the steelworks’ demand, which we would have considered as impossible just six months ago,” Giuliani said.
Russia: In the first eight months of 2005, Russian processors exported about 203,000 mt of stainless steel scrap, even though there is still a 15-percent duty on such shipments, noted Ildar Neverov of Torgmet Ltd. The main buyers of Russian stainless scrap have been Finland and Netherlands, with smaller amounts going to Germany, South Korea, Spain, and India. Finland is the most desired destination because it is geographically close to Russia and because it enables Russian shippers to send scrap to Finnish stainless mills and import finished stainless for sale in Russia, which Neverov called a “popular tolling scheme.”
United States: Virtually every aspect of the U.S. stainless market saw “dramatic change” in the second half of 2005, according to a report by Barry Hunter of Hunter-BenMet Associates L.L.C. (New York City). Domestic mills “significantly reduced” their scrap requirements and their buying prices. In turn, wholesale scrap dealers reduced their prices. Also, on the LME, primary nickel prices dropped from $17,000 a mt to just above $12,000 while nickel stocks climbed steadily from 7,000 mt to 16,000 mt.
Asia’s growing stainless production—and, hence, its need for scrap—is creating serious competition for material in the United States among Asian brokers, stainless mills, and large scrap wholesalers. “Our U.S. consuming markets will eventually find themselves competing for scrap supplies, down to basically truckload quantities,” Hunter stated. Scrap wholesalers, meanwhile, will be “competing for committed supplies against each other and the Asian brokers.” In the future, logistics—such as the availability of containers and the cost of container freight rates—will determine and justify the prices paid for scrap, he said.
U.S. stainless scrap exports totaled 360,000 mt through August compared with 300,000 mt in the same period last year, Hunter said. The five major Asian consuming regions increased their imports of U.S. stainless scrap by about 50,000 mt, or 24 percent, through August. Though South Korea decreased its imports almost 50 percent, China boosted its purchases 70 percent, with the majority of material now being shipped in containers rather than in bulk cargoes, he observed.
Looking ahead, U.S. stainless production and scrap demand should increase in early 2006 as producers complete their destocking period, Hunter said. Competition for scrap will remain stiff, forcing U.S. mills to “readjust their pricing” to secure material and wholesalers to reduce their margins to satisfy their expanding commitments.
Demand for titanium and superalloys, meanwhile, “should remain strong for many years to come, with the usual price fluctuations that we normally experience,” said Stuart Freilich of Universal Metals Corp. (Worcester, Mass.). Burgeoning aircraft production is the main factor behind titanium demand, with Asia—especially China and India—creating “a tremendous demand for commercial aircraft for at least 15 years,” he stated. Also, the growing market for light jets is another plus for
titanium demand.
Though the ferrotitanium market slipped into the doldrums late last year, demand for revert titanium scrap was largely constant thanks to demand from the military, commercial aircraft, and commercial product markets, Freilich noted.
Stability Defines Paper
Europe: In 2004, the paper recycling rate in Europe reached 54.6 percent, reported Martin Kleiweg de Zwaan of FNOI (The Hague, Netherlands) at the paper division meeting. Overall European collections of recovered fiber in 2004 were just under 51 million mt, while scrap paper exports rose to almost 4 million mt, he noted.
The European paper recycling industry was on track in October to reach its 2005 recycling goal of 56 percent, said Kleiweg de Zwaan. From the summer onward, the market was stable and was expected to remain that way due to the sluggish economic conditions in the EU.
Several factors, however, threatened to influence the market in the coming months, he said. The factors included scrap paper exports from the United States, high fuel costs and all the transport-related issues, the dollar/euro exchange rate, mergers in the shipping industry and their effect on freight rates, and collection levels of recovered fiber in Europe.
In addition, Kleiweg de Zwaan said, several European mills announced production cutbacks that could diminish future demand. Plus, competition among processors for scrap supplies remains “very strong,” which “could put the profitability of recovered paper businesses in jeopardy,” he stated.
In the German market, stability has been a disadvantage because it has meant stable margins on a lower level of business, said Hubert Neuhaus of K.G. Ludwig Melosch Vertriebs GmbH & Co. (Philippsburg-Rheinsheim, Germany). The market has not moved up, in part, due to stiff competition between German paper recyclers. Also, collection rates and mill demand have been stable, despite some new paper production capacity in the region, he said, noting that mill order books aren’t strong.
One notable trend in the German market, Neuhaus said, is the growing pressure from mills for recyclers to put labels on their bales so the mills can track material back to specific suppliers if problems arise. Transportation is another problem, he added, noting that it has been difficult to get enough trucks for scrap paper shipments. “I think this will be a problem more and more all over Europe,” Neuhaus said. Also, truck shipping costs are rising 5 to 10 percent a quarter, and recyclers can’t pass along this increase to their mill customers, he stated.
In the United Kingdom, demand was slightly ahead of supply in the fall thanks largely to the strong export market, said David Symmers of the Independent Waste Paper Processors Association (Daventry, England), noting that U.K. scrap paper exports were on track to exceed 3 million mt in 2005. The quality of exported fiber—especially material from commingled municipal programs—has become a critical issue, especially for exports to Asian consumers such as India. As a result, U.K. shippers are seeking clarity on permissible levels of contaminants in commingled loads.
One new threat in the U.K. market pertains to site licenses, Symmers reported. The requirements, as proposed, would force all scrap paper operations to be covered or enclosed, which would impose “tremendous” costs on existing operations. “It’s a problem we need to watch,” he said, adding, “I hope it doesn’t start moving elsewhere in Europe.”
Asia: Last fall, several factors were hurting scrap paper exports to Asia, noted Ranjit Baxi of J&H Sales International Ltd. (London).
One factor was the increasing bunker adjustment factor (BAF) by shipping lines to account for rising fuel costs. As of Nov. 1, the BAF was set to rise $540 per 40-foot container, which was on top of a previous $300 increase a few months earlier, Baxi said.
Another notable factor is the steady growth in Japan’s exports of recovered fiber. In 2003, for instance, Japan exported 1.97 million mt of scrap paper and 2.84 million mt in 2004. In 2005, it was on track to ship 3.43 million mt—an increase of 74 percent over 2003 and 21 percent over 2004, Baxi reported. Japan’s exports of OCC alone were projected to reach 1.55 million mt in 2005—up 76 percent from its OCC shipments in 2003 and 36 percent over its 2004 OCC exports, he noted.
As of last fall, scrap paper exporters were also grappling with price and availability issues. In particular, scrap shippers weren’t able to increase their asking prices due to competition from large exporters and suppliers in countries close to the main Asian consumers, Baxi said.
And finally, recovered fiber exporters have faced stricter quality requirements, especially on unsorted shipments to India, Baxi asserted. India imposed stricter rules on scrap paper imports in 2005 because some imported containers were contaminated with “used plastic carry bags, used PET bottles and soft drink tins and other municipal waste.” If imported loads are found “to be a mixture of contaminated garbage/municipal waste or plastic waste, the consignment will not be permitted Customs clearance into the country under any circumstances,” Baxi said, reading the new Indian government rules. “The importer/CHA will be compelled to re-export such consignment at their own risk, cost and consequences immediately or latest within a fortnight.” The importer/CHA could also face other financial penalties and even prosecution.
As for positive market factors, Baxi pointed to the strengthening of the U.S. dollar against the euro and the ongoing steady demand for scrap paper from India, Indonesia, Thailand, and—especially—China.
Offering some statistics on the Chinese market, Baxi noted that China was on course to import about 16 million mt of scrap paper in 2005—up 30 percent from its imports in 2004. China’s imports of OCC alone have increased from 5.8 million mt in 2004 to a projected 8.3 million mt in 2005—an increase of 43 percent.
The main shippers of recovered fiber to China in the January-July period last year were the United States (4.5 million mt), Europe (2.5 million mt), and Japan (1.7 million mt), Baxi reported.
Recycling Durable Plastics
Only 2 to 3 percent of plastics from end-of-life electronics and automobiles are recycled today, despite the material’s intrinsic value, reported Mike Biddle of MBA Polymers Inc. (Richmond, Calif.) at the plastics division meeting. This low recycling rate is due to low-volume recovery of the material and because such plastics are difficult to recycle.
One recycling problem is that recovered plastics from durable goods often come back with other materials attached to them. Also, if the products have been shredded, multiple plastics are often mixed together with other materials, which creates “a significant separation challenge,” Biddle said. Another problem is that such mixed residue streams can have a low level of plastics. In typical automobile shredder residue, for instance, plastics often account for 15 to 20 percent of the mix. Though electronics shredder residue contains a higher percentage of plastics, it still presents a separation challenge.
MBA Polymers has spent more than $30 million developing an advanced mechanical process for recycling mixed plastics from durable goods. The firm’s system can separate different types of plastics as well as different grades within those types, Biddle said. MBA then sells its recovered plastics—which are similar in quality to virgin plastics—back to the computer, automotive, and electronics industries.
According to Biddle, MBA’s plastic recycling process has several advantages over virgin plastic operations, including:
- they are less expensive to operate;
- their feedstock is scrap, not oil, which has increased significantly in price in recent years;
- they use less than 5 percent of the energy required to operate virgin plastics facilities;
- they are less expensive to build. Virgin plastics facilities can cost $100 million to $500 million, while MBA has built plants for $14 million;
- they can recover just about any type of plastics; and
- their recycled products have a “green” marketing advantage.
Currently, MBA Polymers has three plastics recycling facilities in Richmond, Calif.; Guangzhou, China; and Kematen, Austria. Its Chinese and Austrian operations, both joint ventures, each have a processing capacity of 40,000 mt a year on a five-day schedule. MBA established the Austrian plant to capture the plastic recycling opportunities afforded by the new European Union directive on the recovery of waste electronic and electrical equipment (the so-called WEEE directive).
The China plant, meanwhile, is designed to meet that nation’s growing demand for plastics. Already, China is the second largest plastics consumer in the world (behind the United States), the fastest growing user of plastics, and the largest importer of plastics. According to Biddle, China must import about 50 percent of its plastics supply each year. While there is plenty of manual labor available for plastics recycling in China, there was a need for MBA’s high-tech approach, he said, because many Chinese plastics consumers demand virgin-like quality, consistency in their supplies, and large volumes on a reliable basis, “which they cannot get from the traditional plastics recycling industry in China,” Biddle said.
Establishing a plastics recycling plant in China had its share of challenges, however, including:
- cultural and business practice differences between Chinese and Western companies. MBA, for example, spent months clarifying what its partner wanted and what it wanted out of the joint venture. “It’s not just a language barrier, there were cultural barriers. They look at business differently than we do,” Biddle said, noting that Westerners follow the rule of law in business compared with the Chinese emphasis on tradition and relationships.
- securing financing. MBA, a small California company, had to convince investors and its Chinese partner to invest equity and cash in the project, plus it had to get financing from a bank for the project.
- installation problems. While Chinese contractors were great at constructing the building and installing the basic equipment, they were less efficient at higher-skill tasks such as electrical and controls.
- ever-changing Chinese government regulations that can significantly affect the company’s raw material flows. After MBA started building its plant, for instance, the Chinese government decided to ban all plastic imports from Japan, which was planned to be a large supplier to the MBA operation. Fortunately, Biddle said, that ban was lifted around the time his facility opened;
- permits. MBA minimized hassles in this area by inviting Chinese government officials to tour its plant, which answered their questions and reduced the potential for permitting problems;
- hiring competent employees—a challenge everywhere, including China, Biddle said;
- supporting the operation from halfway around the world; and
- protecting the intellectual property of its proprietary technology.
- According to Biddle, MBA plans to build additional plastics recycling plants in Europe and Asia in the coming years.
Tackling Nonferrous Questions
The nonferrous division meeting in Milan included a special question-and-answer panel discussion on global economic trends, recent developments and future market prospects for major nonferrous metals, and more.
The panel, led by moderator Robert J. Garino, ISRI’s director of commodities, included Marco Vedani of Vedani Carlo Metalli Spa (Milan), Loretta Forelli of Forelli Pietro snc (Capriano del Colle, Italy), Marc Natan of Malco S.A. (Le Pre Saint Gervais, France), and Harvey Rosen of Alpert & Alpert Iron & Metal Inc. (Los Angeles).
The panel covered questions such as: Will the European Central Bank raise interest rates? Which does the EU fear more—inflation or recession? Will the euro weaken or strengthen against the U.S. dollar in the coming months? What’s driving prices in the LME base metal complex? How important is China to the global economy? And could India overtake China in industrial production and GDP in the future?
The most impassioned discussion centered on questions about the aluminum and copper markets. Forelli, a brass ingot producer, complained about the high prices of copper and brass scrap. In her view, those high prices and stiff competition for scrap from Asian buyers threatened the survival of European nonferrous producers like her company.
In response, a member of the audience—Michael Lion of Sims Group Ltd. (North Sydney, Australia)—asserted that European producers can’t look to the scrap industry to subsidize them. While scrap processors want to support domestic consumers, they can’t do so if it means foregoing higher prices elsewhere. “An efficient marketplace has to be one where price is the ultimate weapon,” he stated.
One problem, however, is that the playing field is not level for all market participants, stated Vedani. For example, he noted, Russia protects its domestic metal industry by imposing significant duties on nonferrous scrap exports. Such actions put other countries that don’t enjoy similar protection at a competitive disadvantage.
Turning to aluminum, Rosen noted that the market firmed in the second half of last year due, in part, to dwindling LME aluminum stocks, which decreased from about 1.45 million mt to less than 500,000 mt, or less than 40 days of inventory—an “extremely bullish factor.” Also, the aluminum content in new cars continues to rise. In 2004, for instance, the average aluminum content in cars was 289 pounds, which increased to 296 pounds in 2005. In 2006, that number is expected to continue rising to 312 pounds, which Rosen called “quite an extraordinary multiplier.”
Riding the Commodity Boom
“We are at the height of a true shock on international world commodity markets and raw material markets,” stated Philippe Chalmin of Dauphine University (Paris) at the paper division meeting. In recent years, he noted, global commodity prices in general have hit their highest level ever, essentially tripling since 1998-1999. Crude oil prices, for one, have increased more than sevenfold in that period, from about $10 a barrel to more than $70. “We are really experiencing a true oil shock,” he said.
Why have commodity prices skyrocketed? One reason is strong world economic growth of 4 to 5 percent a year, driven by emerging markets like China and India, Chalmin explained. Also, a lack of investment in commodity production at the end of the 20th century has created scarcity and deficits in the face of today’s high commodity demand.
Notably, paper is the only commodity not to have boomed in recent years due, in part, to excess papermaking capacity in Europe and North America. Will it boom in the future? Chalmin would not go that far, noting that paper is a “very particular case” among commodities.
Nijkerk Marks 100th BIR Meeting
The BIR’s fall meeting in Milan was a historic occasion for at least one attendee—Alfred Arnold “Fred” Nijkerk. That event marked the 100th BIR meeting that Nijkerk had attended since the association’s birth in 1948. Nijkerk was just a high school student when he attended BIR’s founding meeting that year at the Amstel Hotel in Amsterdam. Since then, Nijkerk has attended 100 of the 114 meetings that BIR has held around the world. Nijkerk, a Dutchman whose family was in the scrap business, is “one of the best-known figures of our recycling community,” said BIR President Fernando Duranti of Leghe & Metalli International Srl (Milan) at the fall meeting. Among his accomplishments, Nijkerk served on many BIR committees as well as its ferrous division. In addition, he was founder and former editor of Magazine Recycling Benelux and coauthor of the Handbook of Recycling Techniques. Today, he continues to serve as a contributing editor of Recycling International. According to Nijkerk, the Milan meeting was his last BIR event.
Robert J. Garino is director of commodities for ISRI, and Kent Kiser is publisher and editor-in-chief of Scrap.