BIR Prague—Good News Again
Oct 30, 2014, 14:41 PM
January/February 2000
The prognosis for international scrap markets was decidedly upbeat at BIR’s fall meeting, with most speakers expressing optimism into 2000.
What a difference four months can make.
That was the conclusion of one speaker at the fall meeting of the Bureau of International Recycling (BIR) (Brussels), held in Prague in October. Though he was referring to nonferrous scrap markets, he could have been speaking for all commodities.
After all, since the BIR’s May meeting in Rome, virtually all sectors have taken a turn for the better. And the market reports for ferrous, nonferrous, paper, and stainless steel in Prague reflected this optimism. The dismal days of 1998 seemed to be giving way to brighter times, thanks to the recovering economies in Asia, continued strength of the U.S. economy, the success of various antidumping cases, restrictions on Russian scrap exports, and other factors.
Though the markets are far from their previous highs, the consensus was that things are definitely looking up as the industry enters the new millennium.
Ferrous Bounces Back
The world steel industry—and, by extension, the ferrous scrap business—has seen “a small but important revival of fortunes” in 1999, said Alan Crowe of Mayer Parry Recycling Ltd. (Erith, England). And according to the International Iron and Steel Institute (Brussels), world steel consumption could rise 3 percent next year to 719 million mt and 763 million mt by 2005. Additionally, the electric-arc furnace sector will enjoy 2 percent annual growth.
In the United States, steel production is rising and U.S. ferrous scrap prices are improving. But U.S. processors shouldn’t celebrate just yet, because their margins will continue to be tight, asserted John Neu of Hugo Neu Corp. (New York City).
U.S. raw steel production as of mid-October was 81.2 million net tons, 5.9 percent lower than the same period last year. But steel prices have been rising modestly for most product groups thanks to stronger order books and success in antidumping cases, Neu explained. Other positive news is that labor contract concerns confronting the U.S. steel industry seem to have been resolved. Offshore economic activity has also begun to improve, with clear gains in the Far East. Plus, growth in the U.S. electric-arc furnace sector has created more than 15 million tons of new capacity in the past 10 years, he said. Currently, minimills account for about 46 percent of total U.S. steel production.
In 1999, there has been adequate scrap to meet the relatively low capacity utilization rate of U.S. mills, which has ranged from 77 to 81 percent, Neu reported. Obsolete scrap prices have been sufficient to maintain collection efforts. Prompt industrial scrap generation has been robust as the metalworking industry has been operating at high levels. And both conditions are expected to continue, barring a major economic setback such as a decline in the U.S. stock market.
Notably, U.S. scrap flows have been changing from their historic patterns, Neu said. In particular, U.S. ferrous scrap exports have declined to half their previous highs—1999 exports are estimated at 5.2 million tons—largely because more U.S. scrap is needed to feed the growing number of U.S. minimills.
This demand has created a “new normal” flow of scrap, Neu said. East Coast exporters, for example, are using oceangoing barges and rail to ship scrap to consumers in the Southeast and Midwest. West Coast processors are shipping to consumers as far east as the Mississippi River and into Alabama. “These changes are unprecedented,” he stated. Such shipments can create apparent regional shortages or surpluses. Consolidation of the railroads has exacerbated the situation, causing false car shortages and slowing shipments, resulting in spot shortages.
More proof of the new scrap flows is the increase of ferrous scrap imports into the United States, estimated to be 3.5 million tons for 1999. “It’s clearly possible that within 12 to 18 months, the U.S. could be a net scrap importer,” Neu asserted.
Consolidation has also changed the U.S. scrap industry’s normal operations by imposing a “need to sell” on the market. As Neu explained, “Companies that were once able to speculate on their inventories are now not able to do so as they are driven in the public arena by major debt payments and other cash demands. Simply, they need to sell even though normal logic would be to wait.”
Despite these conditions, steel scrap volume and prices will increase significantly in the next six months, followed by a leveling out into more normal ups and downs, Neu forecast. This doesn’t mean significantly better conditions for U.S. ferrous scrap processors, however. “While volumes and prices will increase, we expect our margins will continue to be challenged by the competitive effects of vast overcapacity,” he said.
In Asia, economic conditions are finally looking up, with investor and consumer confidence returning to most regions, said Ferrous Division President John Crabb of Simsmetal Ltd. (Sydney, Australia) in a report read by Alan Crowe. This confidence has translated into considerable improvement in ferrous scrap prices, which reached $115 a mt for shredded in the fall.
By country, Japan hasn’t reduced its crude steel production as anticipated, but the good news is that this production has reined in its exports of ferrous scrap and pig iron, Crabb reported. Korea’s economy has been growing steadily, helping create consistent demand for deep-sea cargoes. From January to July, it imported 4.14 million mt (about a third from Japan), or 36.5 percent more than the 3.03 million mt it imported in the same period in 1998, Crabb said.
The poor construction market in Taiwan has largely eliminated it from the deep-sea market. New standards for rebar in construction following its recent earthquake, however, are expected to reduce billet imports from the C.I.S. and prompt domestic billet producers to increase production, Crabb noted.
Mills in Southeast Asia, meanwhile, have shown increased activity. Malaysia has been a regular scrap importer, and this trend is expected to continue “as domestic scrap generations and inventories are low and demand for finished products is improving,” Crabb said. Thailand, Indonesia, China, and India have also imported deep-sea cargoes in recent months.
Looking ahead, “the recent increase in ferrous scrap prices in Asia is sustainable, with further increases up to $120 a mt a distinct possibility in the near term,” Crabb forecast. Bolstering this growth will be continuing improvement in Asia and reduced scrap exports from Russia and the Ukraine due to their duties on scrap exports, higher ocean and inland freight rates, and the onset of winter.
In Europe, U.K. steel producers have been badly affected by the strength of the pound. This has caused poor profitability and major rationalization in the U.K. steel industry, resulting in a 500,000-mt fall in production, Crowe reported.
Despite the weakness of the domestic steel market, the U.K. scrap industry is getting stronger, recovering from the lowest prices it has seen in the past 10 years, he noted. Scrap prices are being bolstered by sales to continental Europe, the Far East, India, and the Americas. “It looks like it will be a good start for the millennium,” Crowe asserted.
He then offered a review of other European countries:
Spain. Spain has enjoyed two great years in its iron and steel sectors, and mills’ profits will likely remain good into the near future, Crowe said. Spain’s annual consumption of ferrous scrap is about 11 million mt, of which 5.5 million mt is imported. Domestic scrap arisings have increased, and recent low interest rates have enabled mills to hold high scrap stocks, which has helped them control scrap prices, he noted.
Italy. Steel production is good, with prices inching up. Though scrap prices have been low, they’re now stable and could become stronger in the winter, Crowe said.
Germany. Minimills saw scrap prices fluctuate throughout the year. Scrap demand from Turkey was the lowest in 10 years, cutting German deep-sea shipments as much as 40 percent, he noted. On the bright side, German steel producers have had better sales recently.
France. Scrap has been flowing well for the past two months, despite price reductions at French mills, which have taken advantage of this and maintained high scrap stocks, Crowe said. Steel consumption is strong and will continue that way through early next year. New production scrap is flowing freely thanks to solid production of cars and consumer goods. Though scrap demand will also likely remain strong, a good flow of alternative metallics could limit prices.
Holland. Steelmaker Hoogovens is melting at 100-percent capacity, and though this year has been a poor one for scrap, prices are expected to start improving, Crowe asserted.
Turkey’s crude steel production in 1999 has decreased 2 percent, though the share of minimills has grown 4 percent, according to Mehmet Gultekingil of Thyssen Sonnenberg (Istanbul). In terms of scrap, Turkey imported 4.3 million mt from January through August—1.7 million mt from the Ukraine, 1.25 million mt from Russia, 1 million mt from Europe, and 300,000 from Romania, he said. It also imported 200,000 mt of pig iron. In 2000, Turkey’s economy will continue to be tight due to strict monetary policies, with government expenditures and investments expected to be kept to a minimum despite the need for reconstruction of earthquake-damaged areas, Gultekingil said.
Offering a look at Russia—a major wild card in the steel and ferrous scrap markets—Denis Ilatovsky of MAIR (Moscow) said the country was expected to export about 16 million mt of ferrous scrap in 1999.
To limit the export of ferrous scrap—thus keeping it available for Russian steelmakers—the Russian government imposed duties on scrap exports beginning in May 1999, he noted. These duties reduced both scrap collections and business activity. From April to August, export shipments dropped almost 70 percent. Beginning in July, the domestic market wasn’t able to consume or pay for the internal supply of scrap. As a result, scrap collections began to decrease and ferrous scrap prices declined while prices for other raw materials increased. “This trend is likely to continue in the coming months,” he said.
Another limiting factor has been the cost of transportation for export, which is four times higher than domestic transportation costs, presenting “another type of taxation for export,” Ilatovsky noted.
Currently, some government officials and steel producers have been attempting to put the domestic Russian scrap market under their control, Ilatovsky said. Their efforts are concentrated on two draft laws that regulate business activity of scrap processors. If passed, these laws “will definitely cause significant scrap price cutting, which will give a huge advantage to Russian steelmakers to compete with foreign steelmakers,” he said.
The Ukraine, which exports 2.5 million to 3 million mt a year of ferrous scrap, is also seeking to limit scrap exports to turn the flow to domestic mills—which are suffering from lack of material—and minimize crime in this sector, Ilatovsky said.
Better Times Too for Nonferrous
The good news in the ferrous market was echoed for nonferrous scrap.
North American nonferrous scrap markets have certainly improved since midyear, reported Bob Stein of Louis Padnos Iron & Metal Co. (Holland, Mich.). In particular, rising base metal prices brought out more scrap, easing the previous supply tightness and making scrap more economical compared with primary metal. In fact, “consumers became satiated with material, and they dropped their buying prices accordingly,” he noted.
Some grades of copper scrap are available at prices that can be considered cheap, Stein said. With no aggressive demand for No. 2 copper scrap from the Far East, that material is being sold “at very wide discounts to Comex.”
Brass mills and copper tubing mills are also able to buy scrap at more attractive levels. Brass and bronze ingotmakers, meanwhile, have barely maintained—and in some cases lowered—their scrap purchase prices. “As secondary copper smelting in the United States faces structural changes and as Far Eastern markets’ dependence on North America declines, the values of some grades of North American copper scrap in the future are questionable,” Stein said.
Scrap aluminum has also become much more available. As a result, smelters have been able to replace their purchases of scrap grades normally used by the primary sector with secondary grades. While secondary ingot sales have been brisk, “the spread between scrap and ingot prices is considered by many to be unsatisfactorily narrow,” Stein stated. Also, though discounts under LME and primary metal have widened, they’re still relatively tight. The ongoing consolidation in the aluminum scrap-consuming sector will mean fewer buyers of North American scrap, though most expect demand for aluminum scrap to remain positive. Also, as the Asian economies continue to improve, most look for increased demand from that region.
Both primary and secondary lead markets haven’t changed much and remain well-balanced, Stein said. The hot summer in North America and the upcoming seasonal increase in sales during the winter has battery manufacturers expecting improved battery demand and larger scrap supplies.
Zinc scrap, unlike other nonferrous metals, has been in tight supply and, hence, prices have remained relatively high, Stein said. India, Taiwan, and China have shown renewed interest in North American zinc scrap, with good demand forecast into next year.
In Asia and the Pacific Rim, the economic picture is improving, with greater business confidence and rising industrial activity stimulating trade in nonferrous scrap—even though discount margins remain wide, according to Kumar Radhakrishnan of Simsmetal Ltd. (Sydney, Australia) in a report read by Peter Mathews of Black Country Metals Ltd. (Stourbridge, England).
By country, Australia’s economy is growing solidly with low inflation. Its strong domestic demand for copper, brass, and some aluminum scrap grades has trimmed its exports to Asia and stimulated its domestic scrap collections, though they still lag previous levels, Radhakrishnan said.
While Korea’s economy is rebounding stronger than anticipated, its prices for most nonferrous scrap grades haven’t improved due to high inventory levels, which many consumers stockpiled to avoid shortages in the winter high season, Radhakrishnan noted. Import volumes and prices are expected to improve in Korea, however, as these inventories are reduced.
In Japan, “the continued strength of the yen as well as the pickup in the economy is expected to increase imports in the next six months,” he said. Southeast Asian consumers have been regular importers of aluminum and lead scrap. Taiwan, meanwhile, has shown consistent demand for some grades, though its prices have been lower than expected.
“China has been a disappointing market for all nonferrous traders over the last six months,” Radhakrishnan asserted, noting that foreign exchange controls and a severe crackdown on duty evasion in southern areas have dramatically reduced imports of major grades. With the opening of some new copper smelters and the rise in copper prices on the Shanghai metal exchange, China is expected to show improved demand in the coming months, he said.
Market conditions in the United Kingdom have been “dramatic” since midyear, especially given the closure of the country’s last copper refiner, said Robert Voss of Voss International Ltd. (Harrow, England). In the past decade, in fact, 40 major nonferrous consumers have closed, taking with them about 400,000 mt of nonferrous consumption. “This means that the U.K. has changed from being a net consumer and importer of secondary nonferrous materials to becoming a net exporter, especially of copper scrap,” he stated. There has been a corresponding decline in the number of nonferrous scrap merchants, with expectations that more will disappear “as margins continue to shrink and demand falls away.”
By metal, the United Kingdom’s new role as a net exporter of copper scrap means that margins in this sector will continue to be squeezed, Voss said. On the brighter side, demand has been respectable for aluminum, lead, and zinc scrap. Also, he noted, “the slightly higher LME prices have assisted merchants in trying to recapture some of the lost margins of last year.”
In the long term, the reality is that the United Kingdom is “no longer a manufacturing base but is a center of service industries, and this is having its knock-on effect in the secondary nonferrous metals industry,” Voss stated.
Stainless Sounds an Optimistic Note
Not to be outdone by other metals, nickel, stainless steel, and special alloys have also seen their prospects brighten since midyear.
In the United States, the market has a definite optimistic tone, thanks in part to limits on imports of finished stainless and flat products, which have “enabled U.S. producers to be a lot more competitive in sales,” said BIR President Barry Hunter of Keywell L.L.C. (Elizabeth, N.J.). As a result, stainless mills have been “aggressively seeking supplies for increased production over the next quarter at least.” Notably, mills have raised their buying prices in an effort to “maintain scrap supplies against strong demand from the Asian market concentrated in Korea and Taiwan,” he noted.
As domestic demand has risen, exports to Europe have decreased dramatically. U.S. exports of stainless steel scrap in August totaled 1,500 mt, with less than 200 mt going to Europe, Hunter reported, calling this “an enormous shift in the pattern of exports.”
Riding nickel’s rise, prices for stainless steel scrap in Europe have improved, though margins haven’t kept pace, said Walter Riedweg of Leila A.G. (Zurich). Europe has imported less scrap from the United States this year and seen a dropoff in material from Eastern Europe, especially high-nickel items. At the same time, Europe has exported “significant tonnages of 18/8 scrap to Southeast Asia and the Far East, this mainly due to a high dollar exchange rate,” he noted.
Despite the increase in demand, “there is still enough scrap available in Europe and this is mainly due to the fact that some consumers have considerably reduced the scrap ratio in their melts,” Riedweg said. Still, business has been satisfactory, with European stainless producers busy and demand for scrap good.
As with continental Europe, the U.K. stainless market has shown a “healthy increase in demand for stainless steel raw materials,” said Michael Wright of ELG Haniel Metals Ltd. (Sheffield, England). Domestic production was expected to end 1999 at 490,000 mt, up from 450,000 mt in 1998, with projections calling for 520,000 mt in 2000. Of these totals, austenitic grades are expected to account for 420,000 mt in 1999 and 450,000 mt in 2000, he reported. This growth has been especially encouraging given the U.K. government’s “tight fiscal policy to hold down inflation through high interest rates,” Wright said, though this policy does raise concerns about the growth potential of the stainless business.
U.K. stainless scrap processors should also remain cautious “on the availability of domestic stainless steel raw material arisings with the U.K. manufacturing industry still being in deep recession,” he noted. Currently, there are “too many players chasing lower quantities of materials, which obviously will have an impact on profit margins within the business.”
Paper on Firmer Footing
World production of paper and paperboard in 1998 grew 0.6 percent to 301 million mt, with North America the largest producer at 105 million mt, Europe second at 90 million mt, Asia third at 86 million mt, followed by Latin America, Australasia, and Africa, according to a report submitted by Gianpiero Magnaghi of Macpresse S.R.L. (Milan).
By country, the United States was the largest papermaker at 86 million mt, with Japan a distant second at 30 million mt, followed closely by China at 28 million mt, Canada at 19 million mt, Germany at 16 million mt, and Finland at 13 million mt, Magnaghi noted.
The countries with the largest year-on-year growth, however, included smaller producers such as Indonesia (up 14 percent), Thailand (up 12 percent), India (up 10 percent), Turkey (up 9 percent), and Russia (up 7 percent). In terms of scrap paper consumption, global demand grew about 3.5 percent in 1998 to 133 million mt, Magnaghi said. Asia (including Australia and New Zealand) consumed the most at 47 million mt, with Europe and North America taking second and third place, each consuming about 39 million mt. The United States was the largest consuming country, followed by Japan, China, Germany, South Korea, Canada, the United Kingdom, France, and Italy.
The United States was also the largest exporter of scrap paper at 7 million mt, followed by Germany at 3 million mt, Magnaghi reported. The top-two largest importers of scrap paper in 1998 were Canada and Indonesia, both around 2 million mt, with South Korea and China close behind at 1.9 million mt, Mexico at 1.4 million mt, France at 1.2 million mt, and the Netherlands and Germany both around 1 million mt, he said.
Looking at the U.S. market, scrap paper exports in 1999 totaled 4.6 million tons from January through July, only 0.2 percent more than the tonnage shipped in the same period in 1998, according to Steve Vento of Recycled Fibers International (Sunrise, Fla.) in a report read by Paper Division President Gerry West of Severnside Waste Paper Ltd. (Cardiff, Wales).
By grade, exports of OCC declined 11.6 percent, while shipments of ONP and wood-free deinking grades rose 15 and 12 percent, respectively.
The U.S. market was strong in all sectors throughout the third quarter, Vento said. In OCC and mixed paper, mill inventories were low and generation couldn’t meet demand, so mills continued to buy and push prices up. News grades have enjoyed stable domestic demand as well as solid export orders, especially to the Far East and Pacific Rim, Vento reported. Wood-free deinking grades and pulp substitutes have been in short supply, putting upward pressure on prices. In pulp subs, many mills have been repulping their own broke instead of selling it, he noted.
As for the fourth quarter, “companies are quite optimistic of finalizing the year on a high note,” Vento said, especially if scrap generation continues to fall short of requirements of both domestic and export consumers. OCC might be “the only grade that possibly could weaken a little if generation picks up, as normally is the case during the fourth quarter of each year,” he speculated.
In his report on the United Kingdom, Gerry West noted that in the first half of 1999, U.K. paper production declined about 1 percent while consumption of recovered paper grew 1/2 percent. U.K. mill stocks of scrap have been extremely low, forcing them to import fiber—a trend that’s likely to continue, he said.
Demand for most grades has been good, and even Asian demand, which appeared to be weakening in August, has rebounded with orders at favorable prices aided by workable freight rates. Domestic mills have increased prices for OCC and mixed paper. Consumers of colored wood-free deinking material have also raised prices as they face growing difficulty in obtaining material, much of which is being exported to tissue mills on the European continent, West noted.
The rise in pulp prices has prompted more U.K. mills to use recovered paper, strengthening demand for higher grades and improving prices. Though the market should end 1999 on a favorable note, there are some concerns for the first quarter of 2000, especially in light of millennium issues, West said.
On the European continent, there’s new life in the internal market, with trade increasing between countries, said Alfred Hirt of Sanne, Kruse & Pape GmbH & Co. (Hamburg, Germany). That said, prices for scrap paper in Southeast Asia are expected to be slightly better than European prices, which will draw material out of Europe. With freight rates around $485 to $575 per 40-yard container, there’s considerable tonnage flowing to Asian countries—“and I presume that this trend will continue,” Hirt said.
All eyes are especially on China in the Asian market. With a population of almost 1.4 billion, China’s paper production is expected to grow dramatically. From its 1998 production around 35 million mt, it’s expected to be producing 45 million mt by 2005, with a goal to produce 60 million mt by 2010, Hirt said. Undoubtedly, the country is changing, with new papermaking machines replacing unprofitable, low-quality ones.
The prognosis for international scrap markets was decidedly upbeat at BIR’s fall meeting, with most speakers expressing optimism into 2000.