BIR Report: Market Ups, Basel Downs

At this international scrap conference, market improvements were tempered by concerns about the trade threats of supranational legislation.

By Elise R. Browne

Elise R. Browne is editor of Scrap Processing and Recycling.

The Bureau of International Recycling (BIR) (Brussels, Belgium) convention held in Barcelona in late May marked the first time in four years that scrap recyclers from around the world gathered at a BIR meeting were generally optimistic--or at least "happily pessimistic," as Gianluigi Cattaneo of Metaleurop Commerciale Italia SpA (Milan, Italy) put it--about the state of their markets and prospects for the future.

At the same time, however, delegates seemed to voice more concern than ever before about the Basel Convention and related strictures that threaten international trade in scrap and, thus, could counter many of the market gains reported.

Against this good news/bad news backdrop, the BIR took the final step necessary to change its structure at the Barcelona meeting, with members voting 37 to 5 to adopt new statutes and bylaws that put into effect a restructuring plan approved at the group's most recent meeting.

The most significant structural change--and the only issue cited in the few public explanations of votes declared against the new bylaws--deals with member voting privileges. Under the new rules, individual companies as well as national and supranational federations that are BIR members are entitled to vote. Previously, individual member companies lacked this authority.

The catch is that individual members that are also members of a national federation that belongs to the BIR must express their votes through their national federation. The national federations, therefore, are expected to poll these individual members on their opinions about particular proposals, with each federation then casting its votes either as a block reflecting the majority decision of the members or as the actual number of members for or against a proposal. Each national federation is also entitled to one vote per BIR commodity division it pays dues for.

Individual members that are not affiliated with a national federation are entitled to one vote, which they express directly, and supranational federations get one vote for every commodity division they are members of.

The new BIR bylaws also slightly alter the association's name. (It used to be known as Bureau International de la Recuperation.)

The Basel/OECD/EC Connection

What's behind the restructuring? According to BIR President Jean-Pierre Lehoux of Federec (Paris), it's part of a strategy to increase membership, thereby increasing the association's coffers and representation and its ability to be "a very strong worldwide organization." This, he said, is key to dealing effectively with the growing number of rules and regulations extended beyond the national level, such as the Basel Convention on the Control of Transboundary Movements of Hazardous Wastes and Their Disposal that affect scrap recyclers. His example probably couldn't have been any more appropriate for the spring event: The effects of Basel and related treaties on scrap trade were discussed at every commodity session held in Barcelona, with a few meetings devoting a significant portion of their allotted time to the subject.

At two of the sessions, Francis Veys, BIR secretary general, offered a detailed look at the Basel Convention and two related international statutes--the Organization for Economic Cooperation and Development (OECD) decision on international movement of recyclables and European Union (EU) regulations on the movement of waste--which he collectively referred to as the "three monsters."

The Basel Convention was negotiated through the United Nations and came into force in May 1992. It prohibits the movement of "hazardous wastes" between the nearly 70 countries that have ratified the accord and those that have not unless a bilateral or multilateral agreement is in place, Veys explained, adding that it also disallows shipments if a receiving nation prohibits or does not consent to an import or if there are reasons to believe that the material shipped will not be managed in an environmentally sound manner. Furthermore, the Basel countries recently agreed to ban shipments of "hazardous wastes and residues" destined for recycling from OECD to non-OECD nations beginning Jan. 1, 1998.

Shipments that make it past these criteria, he pointed out, are then allowed only if the shipper has a contract with an authorized facility, obtains written consent from the countries of import and transit, maintains financial guarantees or insurance to cover rejected shipments, and provides information on the type of material to be shipped and the name of its generator, its packaging and intended itinerary, and the process to be employed on it once it reaches its destination.

The primary problem for the scrap industry, Veys said, is that the convention has no clear definition of "hazardous wastes" and makes no distinction between wastes shipped for disposal and materials sent for recovery.

The OECD decision, on the other hand, was drawn up specifically to address the movement of "waste" intended for recovery, he noted. Adopted in March 1992, the multilateral agreement differentiates between hazardous and nonhazardous materials and uses a three-tiered system to control shipments of recyclables between OECD countries. The system, he explained, works something like this: materials on its "green list" are simply subject to normal commercial controls, while shipments of "amber list' and "red list' items must obtain prior notification and consent of the competent authorities in the receiving nation, with tacit consent possible for amber materials. The agreement also requires that all shipments it governs be directed by a valid contract or chain of contracts between authorized facilities or recognized traders.

More recently, the EU adopted a set of regulations on the movement of "wastes," known as EC 259/93. These rules, which went into effect this past May, use the OECD's green-amber-red control system to control materials shipped from or to EU nations for recovery, Veys said. He pointed out, however, that the control scheme varies within each tier of the list depending on whether a shipment is moving to or from another EU country, a non-EU OECD country, or a country that is not a member of either group. In theory, the regulations exempt green materials from controls, he said, but exports from the EU to non-OECD countries are permitted only if the importing country has recognized the green list and/or the green control procedure for the material in concern. In addition, shipments of green list items may be prohibited for environmental reasons or if a country doesn't want to import the items, Veys noted.

EC 259/93 also requires that all shipments be sent to authorized facilities, be covered by a valid contract, and offer proof that environmentally sound methods will be employed in the recovery or disposal process.

Besides confusion over these international rules governing the movement of scrap throughout the world, recyclers at the BIR conference also expressed frustration about various national laws controlling scrap shipments in and out of certain countries. For instance, Hans Peter Munster of Verein Deutscher Metallhander (Bonn, Germany) reported that his country's legislation requires all kinds of financial assurances and material information disclosures prior to importing and exporting, with deposits held until the process is complete-which could be as much as six months later, he said. Delegates from Italy and Austria described similar national requirements, with the latter noting that many Austrian scrap companies have simply decided to stop exporting.

Many other countries, meanwhile, even within the EU, have less stringent legislation, if any, Robert Voss of Voss International Ltd. (Harrow, Middlesex, U.K.) said. In addition, he noted, because the new EU rules must be individually implemented by each member country, but have yet to offer a standard list of wastes to be covered, each nation is defining its waste list differently. "We are continually concerned that the countries of the EU--supposedly a single market--are not on a level playing field because of different interpretations of the same legislations,” he said.

The best answer to the dilemmas presented by these national and international statutes is continued lobbying--not only of political representatives, but also of scrap customers--delegates at different committee meetings agreed. "I believe we are winning, but it's an uphill battle and we have a ways to go," said Environment Committee President Patrick A. Neenan of AMG Resources Ltd. (Harborne, Birmingham, U.K.). "We must now persuade our consumers to write to their governments, the United Nations, the EU, and the OECD to explain that scrap is not waste."

Paper Demand Makes a Mark

While these laws certainly have the potential to devastate some international scrap markets, BIR delegates noted that current trade conditions for most commodities in many parts of the world are basically positive. At the paper stock division meeting, for example, recyclers reported strong demand for a number of grades in the United States, Europe, and the Far East.

In the United States, this demand stems not only from rising mill production, but also from a drop-off in supplies earlier this year, noted Steve Vento of William Goodman & Sons Inc.'s international division (Sunrise, Fla.). Bad winter storms cropped up through much of the United States and Canada in 1994's first quarter, he explained, forcing collections off by 25 to 50 percent and hampering the transportation to mills of the scrap paper that actually was collected. Because the mills generally were working from just-in-time inventories, this falloff created "severe" problems and prompted them to purchase out of their regular regions and beyond their then-prevailing prices.

Collections have improved with the weather, Vento said, but supplies are still off for many grades. There is a shortage of old corrugated, which has helped improve sales of old newspaper and mixed paper, he noted, adding that deinking grades are moving "constantly." This is especially true for sorted office paper, which has traditionally been consumed by tissue and newsprint mills but is seeing growing demand from new mills that are using this material in the production of writing paper, he noted.

Concluding with a note that his "overall expectations are good for the future," Vento added that he hoped mills would soon be able to maintain inventories, thus helping to stabilize scrap prices.

A similar supply-demand situation was reported by Gerry West of Severnside Waste Paper (Whitchurch, Cardiff, U.K.), who called mill stocks in his country "precariously low" and noted that at current levels "demand cannot be met without price increases or large-scale imports or both." Only the tissue sector, he said, "continues to be less than buoyant." In the Czech Republic, on the other hand, the greatest demand is from tissue mills, reported Miroslav Horak of Svaz Prumyslu Druhotnych (Praha, Czech Republic).

While these and related market trends have generally meant a rise in scrap prices paid by mills throughout Europe, Paper Stock Division President Giampiero Magnaghi of ComImpex SpA (Rozzano, Italy) pointed out that when mill buying prices go up, so do packers' buying prices, so the paper recycling industry isn't necessarily experiencing higher profits.

Ferrous Market Off Its Perch

At the ferrous division meeting--practically the only session at recent BIR conferences where there has been positive news to report--delegates in Barcelona noted a recent drop in scrap prices, but most were optimistic nonetheless. Ferrous Division President Anthony Bird of Bird Group of Cos. Ltd. (Stratford-upon-Avon, U.K.), for example, noted that minimills are producing more and more of the world's steel--27 million metric tons more in 1993 than 1989 not including Russia and the former Eastern Bloc countries. "Therefore, demand for our product is ever increasing," he said, "and we will see prices readjust upward again before too long, although not to the heights we experienced in the last quarter of 1993."

Edward Hollander of Clarendon Ltd. (Glenview, Ill.) saw the situation in much the same way, predicting "a bottoming of the market in the future," followed by a turnaround in prices. "The market was overdone on the way up and, as usual, overdone on the way down," he said. In the meantime, he said, market fundamentals remain good, with automobile production, construction, and home appliance sales up in the United States, helping to bring steel mill operating rates to "extremely good" levels.

Foundry business is also decent, Hollander noted, reporting "excellent demand for foundry grades of cast and cut steel as well as other specialty items such as rail crops."

National economic problems have put a damper on steel in some other parts of the world. In Russia, for instance, mills want scrap, but scrap processors fear that they won't get paid for material, so collections have fallen drastically, said Edvard Volianski of Promsyrioimport (Moscow).

In Japan, meanwhile, financial troubles traced to a stronger yen have forced integrated mills to curtail production in recent months, said Hideo Itoh of Nakadaya Co. Ltd. (Tokyo). Because of the difficulties in cutting production of pig iron, however, mills have had "plenty of excess" pig iron and have sold much of it to electric furnaces, he said. As a result, the percentage of pig iron being charged in Japan's minimills has reached 7.1 percent on average--a record high, he said--and has replaced scrap. Nevertheless, he concluded, "our industry, which has been losing money for the last three years, finally sees a light at the end of the tunnel."

Looking at Asia as a whole, John Crabb of Simsmetal Ltd. (North Sydney, Australia) reported that most countries in the region have cut steel production. This, he said, combined with higher scrap purchases in late 1993 that helped build up inventory levels, has meant reduced import demand. Taiwan has been "the most disappointing of all," with electric furnace production running at about 75 percent of capacity, thus keeping scrap imports down in the first half of this year, with further weakening expected in the second half.

Crabb offered more-positive news for some other Asian markets. Korean electric mills, he said, have been operating at maximum capacity and are expected to continue to do so through the second half of this year. As a result, scrap imports have increased, he noted, predicting that they will exceed 5.5 million metric tons this year.

China, meanwhile, has made a large investment in its electric-arc furnace capacity, dropped its scrap import license requirements, and allocated government funds for scrap purchases, boding well for its role in the world steel industry, he said.

Another potential bright spot is Thailand, where minimill capacity is expected to be expanded soon, bringing what Crabb called "a significant increase" in scrap imports in 1995. "The optimism of previous years appears to be on the brink of being fulfilled," he said.

Signs of a Nonferrous Recovery

Nonferrous metals, which had long been suffering from overwhelming world stock holdings on top of a sluggish international economy, are finally beginning to sparkle again, speakers at the nonferrous division meeting indicated. As John Crabb put it, "The wheel has turned somewhat and the prices of key primary metals have risen strongly on the back of a buoyant U.S. economy, general improvements in global auto production (Japan excluded), promises of meaningful aluminum production cuts, and, most importantly, large hedge fund buying on terminal markets."

Looking specifically at markets in his region, Crabb noted that the economies of both Australia and New Zealand have improved, with both countries demonstrating strong demand for copper and copper-based scrap and growing demand for aluminum.

Japan, on the other hand, has seen political instability and the rising value of the yen take a toll on its already-struggling economy, he said. While this has affected aluminum scrap consumption, it has also kept domestically produced scrap in short supply, "forcing buyers to concentrate on the overseas market to fulfill their needs," Crabb noted. But there has been a reduction of material available for export to Far Eastern markets thanks to increasing demand in other parts of the world, he pointed out, so Japanese prices for aluminum scrap "have increased dramatically." The situation for brass mills and copper scrap is similar, he added.

Korea, meanwhile, has apparently benefited from Japan's financial problems, which have helped the former become a more-competitive importer, Crabb said, noting that demand and prices for copper and aluminum scrap there have improved. Other good news for Korea and its suppliers: There are plans for what Crabb called "a dramatic expansion in automotive production"-3.5 million to 4 million annual units by 2000.

Offering a North American perspective, Larry Sax of Barmet Aluminum Corp. (Akron, Ohio) noted that U.S. demand for copper has been strong, helping to lower world inventories of refined grades, and red-metal scrap has been "flowing at favorable levels." The third and fourth quarters of this year could see even more of this trend, he indicated, pointing to improved copper consumption prospects in Europe and Japan.

Aluminum scrap has also been in good demand, he said, noting high levels of exports to the Far East, particularly Taiwan.

The U.S. lead market has been marked by positive demand as well, but a decline is expected in the traditionally slow summer months, Sax reported. Looking into the second half of the year, he forecast a possible rally in world lead prices due to perceived shortages of lead concentrates, but noted that high London Metal Exchange inventories "will likely limit the upside."

Stainless Prices Up, But Where's the Scrap?

Like many other scrap-related commodities, stainless steel and nickel saw rising prices prior to the Barcelona meeting, but guest speaker Victoriano Munoz Cava of Acerinox S.A. (Madrid) offered a bit of caution about cheering that trend too much. While a rise in nickel quotations is good for the industry in the short term, he said that "if extended long term beyond certain limits, it would be very bad." His reasoning: Stainless steel is beginning to replace other materials in some applications, but such developments could go by the wayside without price stability. In addition, he emphasized, "unrestrained soaring prices--as happened from mid-1986 to early 1989--would lead us to a plunge of prices and lower consumption growth, as has occurred in the last five years."

With this caveat in place, Munoz Cava extended a forecast for higher stainless steel consumption and scrap demand ahead. European apparent consumption of stainless steel in the first quarter of this year, he pointed out, is already 20 percent higher than for the same period of 1993, "so even if it decelerates somewhat in the second half of the year, we could well see a 15-percent growth at the end of December." Furthermore, he said, Far Eastern countries "have and will have higher consumption growth every day."

There will also be new world capacity brought on-line, mainly in the Far East and Europe, he said. "And for such larger production we'll need more raw materials-particularly stainless steel scrap." As proof of such increases, Munoz Cava noted that his company is investing some $100 million in an expansion of its Campo de Gibraltar operations, which will bring Acerinox's annual melt shop capacity to 740,000 metric tons (mt). (Its current output is about 540,000 mt, he said.) To feed this capacity, he estimated the company will require about 400,000 mt per year of stainless steel scrap.

This was good news to the recyclers at the stainless steel and special alloys committee meeting, many of whom were already feeling more upbeat about their markets than they had in some time. In fact, representatives from France, Italy, Switzerland, the United Kingdom, and the United States reported generally positive stainless market fundamentals and forecast more of the same ahead. As Austin Merrills of Ireland Alloys Ltd. (Hamilton, Scotland, U.K.) put it: "The outlet continues to look firm on the demand front. Production is running at relatively high levels and no cutbacks are planned for the immediate future. Indeed, if anything, production increases are on the table."

There is a downside to today's higher prices and demand, said Committee Chairman Barry Hunter of Keywell Corp. (Port Elizabeth, N.J.), explaining that profits are eluding scrap processors since they must pay top dollar to get material. Plus, "purchasing scrap for yard deliveries practically at any price level is very difficult to possible." As a result, Hunter concluded, "What I see today is that anybody in a long unsold position has a smile, anybody trying to purchase scrap is very frustrated, and anybody who is short scrap is looking for the highest possible window."•