BIR Report—Singing the Global Scrap Blues
Jun 9, 2014, 08:39 AM
January/February 1999
Scrap markets took a beating around the world in 1998, and the prospects for 1999 are iffy. Such was the verdict of scrap recyclers at the BIR’s fall conference in Brussels.
By Kent Kiser
Kent Kiser is editor of Scrap.
Optimism was a scarce commodity at the Bureau of International Recycling’s fall conference, held in Brussels in October.
Scrap recyclers from around the world bemoaned the dire market conditions for virtually all scrap materials, with comments ranging from “lean, troublesome times” to “the most depressed period since World War II.” Still another opined, “With prevailing market circumstances, the less said the better.”
But there was much to say. In particular, speakers stressed the speed and extent of 1998’s downturn compared with past down-cycles. A ferrous processor added, “Tremendous volatility in the financial and foreign exchange markets is making it nearly impossible for many of us in this industry to plan ahead with any confidence.”
The “r” word—recession—even raised its ugly head, with speakers stating that “a global metals recession is quite foreseeable” and “a North American recession is spoken of in some circles as unavoidable.”
As Robert Voss of Voss International Ltd. (Harrow, Middlesex, England) put it, “If the metals industry is the pendulum of the economy, then one might say that the clock had almost stopped.”
Will the scrap clock tick strongly again? Yes. The question is, when?
Voss, for one, noted that some hope was already appearing on the horizon. “We’re beginning to see some glimmers of interest, particularly from the Pacific Rim and the Far East, which perhaps from the nonferrous side we haven’t seen for eight to 12 months,” he said.
Voss also called on scrap executives to change their mentality to help reverse the negative market sentiment. “We as leaders of the recycling industry must show the responsibility to start rebuilding confidence as of today,” he asserted. “I think we’re all guilty of talking ourselves to a great extent into these recessionary and depressed times, and I think therefore that we as leaders must shoulder the responsibility and start talking ourselves out of it.”
Nonferrous: Reasonable If Not Robust
In North America, the nonferrous markets are acting as if the continent is already in a recession, with scrap markets reflecting lower volumes of business and diminishing margins, said Robert Stein of Louis Padnos Iron & Metal Co. (Holland, Mich.).
Secondary aluminum grades were hurt by the General Motors strike as well as a flood of ingot from the Far East, he noted. Since the strike, orders have improved—but at lower prices, which is diminishing scrap availability and, thus, squeezing secondary smelters’ margins, resulting in a generally erosive atmosphere. “This situation is expected to continue into 1999,” Stein said.
Primary aluminum scrap grades have depreciated faster, with overall demand declining about 15 percent, he continued. Though there’s a balance between scrap availability and demand, a reduction in orders for aluminum products will continue to put pressure on this market, with perhaps slightly more stability for scrap as arisings decline.
As for copper scrap, a downturn in mill orders, availability of cheaper cathodes, and some dumping of finished products into the U.S. market have caused wide discounts for scrap from Comex values, despite low terminal market values, Stein said. Scrap has generally been available, however, because some smaller processors have liquidated their speculative copper holdings to raise cash and because West Coast copper scrap is being sold domestically due to the reduced demand from Asia.
While primary copper scrap grades aren’t plentiful, there seems to be an appropriate balance, he said. Secondary grades are available at unusually deep discounts to terminal market values, while ingot-maker grades are facing declining prices after a relatively high summer.
Zinc scrap has been generally available to North American consumers thanks to the sustained strength of the galvanizing and oxide industries, Stein reported. Less zinc is being recovered from automotive shredder residue, however, due to the lower use of zinc in cars and decreased shredding activity resulting from the depressed ferrous scrap market. The bad news for zinc is that its prices are at their lowest in four years, exports have declined, and imports may become a factor in the near future, he said.
As for lead scrap, prices are under pressure, with scrap battery tags declining as much as 40 percent since summer, Stein observed. Scrap supply will likely more than meet anticipated demand and prices can be expected to stay at or near current levels—assuming no significant increase in lead production. Inventories of new batteries, meanwhile, remain high.
Summing up, Stein said, “While it’s difficult to imagine that things could get much worse, they could in the short term.” The U.S. economy, however, is one of “potent resolve,” he asserted, adding that “borrowing rates and the economic expansion of historic proportion will serve to establish the foundation for a recovery.”
Halfway around the world in the Far East, demand for nonferrous scrap has generally stabilized—albeit at lower levels and lower prices, said Kumar Radhakrishnan of Simsmetal International (Kuala Lumpur, Malaysia).
While countries such as South Korea and Thailand have taken steps to stabilize their currencies, the big question is what Japan and China will do. “Clearly, the region is looking for Japan to take the lead in the revitalization of its economy and reform of its banking sector,” he said. “Lack of action in this area could result in further destabilization of the region.”
In China, meanwhile, currency devaluation and the strong deflationary trend have been the top concerns, and it will struggle to continue its 7-percent growth rate in the face of declining exports.
China has continued to have reasonable but not overwhelming demand for copper scrap, Radhakrishnan said, noting that its tight money policy and strong crackdown on duty evasion, smuggling, and black market currency transactions have slowed nonferrous imports. On the plus side, China’s rebuilding after its recent floods and rumored large infrastructure program for 1999 could keep demand consistent.
Aluminum scrap has seen its prices and demand decline in the Far East due to competition from inexpensive Russian ingot and a weak construction market in China, Radhakrishnan said. Positively, India’s demand for aluminum scrap has improved dramatically thanks to a significant reduction on its aluminum scrap tariffs. Still, secondary producers continue to work on razor-thin margins.
Lead continues to be lackluster, with nothing on the horizon to change this outlook, noted Radhakrishnan.
Overall, Far Eastern demand for nonferrous scrap should remain reasonable, if not robust. The market’s fortunes will lie with the overall performance of the global economy, particularly the United States and Europe, which have provided a strong alternative to Asian markets, Radhakrishnan said. The recovery of Asian economies will be at least a year or two in the making, “though strong actions on the part of individual governments to revitalize their economies could rapidly change the situation,” he said.
Ferrous: How Low Can You Go?
The U.S. ferrous scrap market has been “dismal,” defined by steel mill operating rates below 80 percent, layoffs, and furnace shutdowns; record imports of steel; higher imports of pig iron and scrap complements; and dropping scrap prices, noted Edward Hollander of Hollander Metals Inc. (Glenview, Ill.) in a report read by Mitchell Padnos of Louis Padnos Iron & Metal Co. (Holland, Mich.).
On the issue of scrap prices, he stated, “We haven’t seen such sharp drops in prices in such a short time.” Early November, for instance, saw factory bundle prices diving 26 percent from $110.80 to $82.30 per gross ton—the second consecutive month where price declined more than $20, according to the American Metal Market.
While U.S. steelmakers struggle, there are some encouraging signs in the export market thanks to orders from Taiwan and South Korea. “We’ve seen higher prices bid and paid for cargoes since scrap supplies are low, with poor flow into dealer yards,” Hollander said. Notably, processors are having to “offer different compositions due to not having the traditional quantities of cut grades.”
It’s likely that the U.S. market won’t show any marked upswing until the first quarter of 1999, he concluded.
In the Far East, ferrous scrap prices have fallen to their lowest level in almost 20 years, while scrap imports have declined as much as 45 to 50 percent to the lowest levels in years, said Ferrous Division President John Crabb of Simsmetal Ltd. (Sydney, Australia).
The Southeast Asian markets of Indonesia, Malaysia, and Thailand have been the worst, with scrap imports all but ceasing, he reported. Malaysian mills have cut production as much as 50 percent and are relying on domestic scrap. China, likewise, has shown “no significant import activity during recent months,” Crabb said. Indonesia and Thailand, on the other hand, could show some improvement as their domestic scrap supplies start to dry up or fail to meet the mills’ quality needs.
On the brighter side, demand isn’t bad in Taiwan and South Korea. Taiwan’s scrap consumption in the first six months of 1998 was down only 5 percent and it should continue to be an active market, Crabb said. South Korea has improved its scrap demand, though its total consumption is down about 40 percent from last year. And scrap prices have fallen in both countries thanks to such factors as reduced steel production and increased scrap imports from Japan, Russia, Ukraine, and South Africa on top of traditional shipments from the United States, Europe, and Australia, he noted.
The pockets of consistent demand from Taiwan and South Korea should continue in the months ahead, Crabb said, maintaining that the Asian market may have found a price floor. Also, the stronger yen will help reduce the flow of Japanese scrap to Taiwan and South Korea, and scrap processors’ inventories and processing volumes should fall as buying prices are forced lower to offset their tighter margins.
Hideo Itoh of Nakadaya Corp. (Tokyo) confirmed that Japan has been exporting more ferrous scrap—and pig iron—than in previous years. In 1997, it exported 2.2 million mt of scrap, whereas it shipped that much in the first eight months of 1998. Japan, meanwhile, shipped 1.4 million mt of pig iron in that period—more than six times the 1997 total.
A depressed domestic market is the reason behind Japan’s increased export levels—Japanese ferrous scrap prices declined 37 percent in the first 10 months of 1998, with No. 2 heavy-melting scrap ranging from $73 to $94 per mt in different cities, Itoh noted. For Japanese processors, market conditions are the worst since World War II, he said, pointing out that the industry has been losing money since the second half of 1997. Shredders, in particular, are struggling with exorbitant landfill costs for shredder residue—about $162 per mt, with the potential to rise to $200 per mt in 1999—and low selling prices for their shredded scrap. In response, some shredders have begun charging around $26 to accept auto hulks, while others have shut down.
Japan has tried to right its economy by injecting 60 trillion yen—about $500 billion—into its banking system, Itoh reported. Such efforts at economic turnaround are critical because the general view is that Asia as a whole can’t recover until Japan recovers, though “we might have to wait one or two years before we see any visible improvement,” he said.
Europe, in contrast, is “in general still a good marketplace,” said Alan Crowe of Mayer Parry Recycling Ltd. (Erith, Kent, England). The mid-term and long-term outlook is good for steel demand, and winter production cuts might not be as great as expected.
As for scrap, the supply of certain grades “is slowing down in a very big way,” Crowe said, noting that “the supply side of the equation is beginning to kick in.” Scrap flows into shredding plants have decreased 25 to 30 percent, while heavy and demolition scrap supplies have also declined. “Scrap flows from traditional supply routes are dropping off,” he stated. “Collected scrap is being seriously reduced in volume.”
As a result, shredding facilities throughout Europe are being mothballed, demolition contracts are being put on hold, and smaller dealers are going out of business, Crowe said. Localized shortages of scrap are already causing prices to not only stabilize but increase, with higher prices already being paid by Spain, Turkey, and other European consumers.
This means that supply rather than demand will direct the price of scrap in the near future. “The fall in the price of scrap has been demand-led,” Crowe said. “The increase in the price of scrap will be supply-led, and I suggest that might not be too far in the future.”
Stainless Struggles Along
In 1997, U.S. stainless production totaled 2.15 million tons, of which 66 percent was austenitic. Though 1998 production was projected to be only slightly less, that projection has been revised downward to just over 2 million tons, with the austenitic share decreasing to 61 percent, or about 200,000 tons, noted Stainless Steel & Special Alloys Committee Chairman Barry Hunter of Keywell L.L.C. (Elizabeth, N.J.) in a report read by Ruurd Werner of Edelstahl Recycling GmbH (Offenbach am Main, Germany).
The decline in the austenitic share was due mainly to stainless imports, which were shipped to the United States thanks to its higher domestic stainless prices, stronger currency, and estimated 1.8-percent growth in stainless consumption in 1998, Hunter noted. In response, U.S. stainless producers filed antidumping suits on stainless sheet and strip, which were expected to be decided in December. If upheld, the suits “should definitely provide some major relief in 1999 for our U.S. consuming mills,” he said.
On the scrap side, U.S. stainless producers were expected to have significantly lower demand in the fourth quarter, with scrap supplies more than adequate to meet both domestic and offshore demand. “Cash flow for the consumers, the large wholesalers of scrap, and now for the public recycling companies will become extremely critical—basically for survival,” Hunter said.
In the short term, there’s “very little in the U.S. or international horizon that would quickly alter the current direction of our markets and business,” Hunter said. “For the time being, we must be patient, reduce overheads, buy realistically, realize costs, and it wouldn’t hurt to pray for a severe and prolonged winter in Russia.” Both processors and consumers need demand as well as improved and stabilized nickel values to “really turn this business around,” he said.
In Japan, stainless producers began in January to try to cut production. In the first eight months, production was 1.9 million mt—down 12.2 percent from comparable 1997 numbers—with production expected to end the year at 2.8 million mt, or 15 percent less than 1997, noted Hideo Itoh in a report read by Rick Wilcox of the British Metals Federation (Huntingdon, Cambridgeshire, England).
The causes for this reduced production include shrinking housing demand in Japan, weak demand in East Asia, and limited exports to the United States due to antidumping suits. Prices for stainless mill products have reflected these demand problems, with 18-8 cold-rolled sheet bringing $1,000 per mt compared with $1,800 per mt in August 1997, Itoh said.
With reduced production, Japan has had virtually no need to import stainless scrap or nickel cathode since June. In the first eight months, Japan imported 30 percent less stainless scrap than the same period in 1997 and was expected to develop a stainless scrap surplus. Already, companies in southern Japan have been exporting stainless scrap to Posco, the large South Korean stainless producer, Itoh noted.
The Japanese domestic stainless scrap price, which started to decline in August 1997, continued to fall throughout 1998, reaching about $555 per mt, delivered, in October, with the potential to fall further later in 1998, Itoh reported.
Europe has also felt the fallout from the financial crises in Asia and Russia, noted Ruurd Werner. Asia’s problems have brought about depreciated currencies, lower demand in Asia for European scrap and mill products, and greater exports of scrap and mill products into Europe. Russia, likewise, has been shipping large quantities of raw materials—nickel and ferrous scrap—at inexpensive prices. European stainless producers “have been compelled to compete with these offers and have tried to cut all costs, and the price of scrap is the easiest to cut,” Werner said, noting that “scrap prices have been reduced to a minimum in real terms.” Though European stainless production “has been satisfactory so far,” showing only a slight slowdown, it’s expected to slow further in the coming months, he said.
Bleaker Times Ahead for Paper?
World production of paper and paperboard was about 299 million mt in 1997, up 5.8 percent from the 282.7 million mt in 1996, reported Giampiero Magnaghi of Union Maceri (Rome).
Consumption of scrap paper, meanwhile, grew 6 percent in 1997 to about 128.7 million mt, with Asia consuming 45.5 million mt—or about 35 percent of the total—followed by North America at around 38 million mt and Europe at 37.1 million mt, he said.
In terms of scrap paper imports and exports, the largest importers of secondary fiber in 1997 were Canada at 2.1 million mt, China at 1.6 million mt, and South Korea at 1.5 million mt. In contrast, the largest exporting countries were the United States at 6.8 million mt, Germany at 2.7 million mt, and the Netherlands and Belgium, each at about 1 million mt, Magnaghi noted.
While 1997 showed positive growth in most areas, 1998 isn’t looking quite so rosy. In the United Kingdom, for instance, scrap paper consumption was high in the first eight months of the year, but that “situation is now rapidly reversing and it is anticipated that mills will have full stocks at year end,” said Paper Division President Gerry West of Severnside Waste Paper Ltd. (Whitchurch, Cardiff, Wales).
Though supply and demand for most grades were in balance in early fall, that balance will likely be tipped at the end of the year. U.K. mills reduced their buying prices on middle-quality grades 7 percent in early September and another similar reduction was expected at the beginning of November, West said. Also, “the continuing low price level of pulp is beginning to be reflected in lower prices for the high-quality grades, although demand for these qualities is good.”
On the plus side, some U.K. newsprint mills have added deinking capacity and exports were at record levels in the first eight months, running around 250,000 mt, with the majority going to near Europe, West said. On the downside, two mills in northern England have closed and many mills have high stocks of finished goods, which could result in downtime, reduced demand for scrap, and lower scrap prices. Overall, he concluded, “There is little confidence for the last quarter of 1998.”
Tackling Environmental Issues
On the government front, one issue of concern for European scrap recyclers is a draft directive on end-of-life vehicles (ELVs) being considered by the European Parliament and Council of Environment Ministers. Among its features, the directive would require more hand-dismantling of ELVs before shredding “to an extent that will significantly reduce the nonferrous metals entering the shredders and going subsequently to the media and metal separation plant,” noted Environment Committee Chairman Patrick Neenan of AMG Resources Ltd. (Birmingham, England).
The directive also recommends focusing research and financial support on activities between the vehicle owner and the dismantler, leaving “no room for financing technological solutions for material recovery from the current shredder waste for final disposal,” Neenan said. Unfortunately, thus far “the discussions in parliament have shown no regard for the situation of the shredding industry nor of the media and metal separation plant,” he stated.
Radioactive scrap was another hot topic on the environmental agenda. Scrap processors and consumers around the world are finding more radioactive scrap and sources in the scrap stream for several reasons, including improved and more prevalent detection equipment, more sources entering the scrap stream, and increased trade with less-developed nations that don’t adequately control their radioactive sources, noted Chris Begg, a Warwicks, England-based consultant.
In addition to installing radiation detectors and training employees how to use them properly, processors can protect their operations and employees from radiation by prohibiting smoking, eating, and drinking on the job; requiring protective gear such as gloves and face masks (if dust is present); and implementing response procedures if radioactive material is detected, Begg said.
When it comes to safeguarding against unhealthy exposure to radiation, the three key issues are: shielding (the greater the barrier, the better), time (less time around radiation, the better), and distance (more distance, the better), he explained.
In the bigger picture, processors need more guidance and assistance on what to do with radioactive sources and scrap they detect, Begg said. In addition, there’s a need for international standards on acceptable levels of radiation in scrap that would enable the material to be safely shipped and consumed.
The Basel Convention also continued to be a topic of discussion and controversy, with many wrinkles still to be worked out before its unratified ban on the shipment of “hazardous wastes” can be effectively implemented.
Guy Thiran of the International Council on Metals and the Environment (ICME) (Ottawa, Ontario) reviewed his group’s strategy for dealing with the convention. ICME’s objective is to minimize barriers to the international trade of recyclables.
To achieve this, the group is taking two approaches:
- It is working outside the convention and being aggressive. It is convincing countries not to ratify the Basel export ban; presenting a position paper offering economic, trade, and environmental arguments against the ban; and seeking endorsement from international commerce organizations, Thiran noted.
- ICME is also working inside the convention and being constructive. In this regard, it’s working to ensure that international free trade in recyclables can continue even if the export ban is implemented, he explained.
In the longer term, the key to protecting such trade will be to make environmentally sound management, or ESM, the basic requirement—that is, companies can only receive recyclables if they can guarantee environmentally sound management of the material, Thiran said.
Promoting PVC Recycling
Currently, only about 20 percent of PVC scrap is recycled in Western Europe, with another 18 percent “recovered” in waste-to-energy facilities. The remainder is incinerated or landfilled.
But a new integrated approach to PVC scrap aims to increase that recycling rate, according to Paul Jackson of the European Council of Vinyl Manufacturers (Brussels), which is collaborating on this project with the Brussels-based Association of Plastics Manufacturers of Europe.
The approach includes four elements: prevention and/or reduction of scrap and waste generation at the source; recycling; energy recovery; and landfilling, Jackson noted.
The two recycling options are mechanical—where sorted PVC products are ground and cleaned for reprocessing into new products—and feedstock, or raw material recovery—in which mixed, unsorted, or multimaterial PVC products are broken down into their basic chemical components such as hydrocarbons and hydrochloric acid, Jackson explained. Current feedstock recycling techniques include hydrogenation, gasification, pyrolysis, and steam cracking. Some of these processes are already commercially viable while others are being developed on a pilot-plant scale.
According to the groups, however, to reach their new PVC recycling goal, European producers will have to establish efficient and effective collection programs—through take-back, bring-back, or curbside approaches—and refine the feedstock recycling technology. •
Scrap markets took a beating around the world in 1998, and the prospects for 1999 are iffy. Such was the verdict of scrap recyclers at the BIR’s fall conference in Brussels.