BIR—Reviving International Markets

January/February 1992

Attendees at the BIR's fall convention discussed why international scrap markets are languishing and questioned the fate of their commodities in 1992.

Positive comments about international markets for recyclables were as hard to find as kind words for environmental regulators at the fall conference of the Bureau International de la Recuperation (BIR) (Brussels, Belgium), held in Vienna, Austria, in October. Reports at every commodity session were laden with negative adjectives as an estimated 600 representatives from around the world bemoaned the tough times their industries are experiencing. There were virtually no redeeming words for 1991 and less-than-enthusiastic expectations for 1992.

Oversupply Key to Nonferrous Woes

John Crabb, Simsmetal Ltd. (North Sydney, Australia) and a nonferrous division vice president, summed up the nonferrous scrap and product markets in Australia and the Asia-Pacific region with one word: "difficult." "Although consumption has been strong," he noted, "prices have followed terminal markets south. The flood of metal from the Eastern Bloc has further exacerbated the current oversupply situation." European scrap executives echoed his comments, describing the flow of aluminum from the Eastern Bloc as "tragic" and "depressing."

Even the usually stalwart Japanese economy is showing weakness, Crabb observed, while Korean buyers have been watching developments in Japan , following that country's buying and pricing trends. "Brass scrap purchases have been slow and copper buying volatile" as a result of buyers taking advantage of material surpluses and cheap remelt ingot from the Soviet Union, he said. Demand for aluminum and brass scrap is reasonable in Taiwan, he noted, but prices are weak. "The secondary aluminum ingot market is extremely competitive, and producers are hurting as both domestic and export sales prices weaken," Crabb remarked.

Indonesia, he pointed out, has become the major Asian importer of scrap lead-acid batteries and battery-based lead, replacing Taiwan and Korea, which are hampered by environmental problems. In addition, Indonesian and Japanese firms have commissioned a new secondary aluminum plant, with a planned production capacity of 700 to 800 metric tons per month.

Presenting a report on the U.S. scrap market prepared by Larry Sax, J. Sax and Co. Inc. (Boston) and a division vice president, Nonferrous Division President Gianluigi Cattaneo, Metal-Europe Commerciale Italia SpA (Milan, Italy) noted that copper scrap was flowing slightly better than in previous months. Low prices and dwindling demand in all aluminum scrap markets were prompting some processors to hold scrap, according to Sax's report, which also observed that lead was not being consumed at the usual third-quarter demand levels and that there were excessive zinc stocks in London Metal Exchange warehouses.

Another division vice president, Robert Voss, Voss International Ltd. (Middlesex, United Kingdom), reported that "the general recession in the United Kingdom has deepened, and this is beginning to bite even harder on the nonferrous scrap sector of the industry." More small- and medium-sized merchants are closing down, either through voluntary liquidation or bankruptcy, he said, and margins are being squeezed even further than producers and consumers thought possible. Many secondary smelters are producing metal at a break-even level—or at a loss—while demand for copper continues to fall, Voss remarked. Moreover, exports to the Far East have been hindered by the weakening dollar, falling overseas demand, and the availability of inexpensive material from Eastern European countries.

Ferrous Division President Anthony P. Bird, Bird Group of Cos. Ltd. (Stratford-upon-Avon, United Kingdom), asserted that "most of our markets are languishing due to recessionary market conditions in the steel industry in Europe and the United States, as well as the weakening of the Southeast Asian, Japanese, and Pacific markets, and the absence of India as a serious consumer."

Reporting for Edward Hollander, Clarendon Ltd. (Glenview, Ill.) and a member of the ferrous division board, Alter Goodstein, Clarendon Ltd. (Stamford, Conn.), cited three factors contributing to the recession in the U.S. market: "a decided lack of consumption of scrap in India due to its financial crisis"; "a much stronger-than-anticipated freight market because of 'hopeful' expanded charters of grain to the Soviet Union and its republics"; and "a seemingly never-ending supply of European-source scrap."

Minimills are operating at a fair pace, he noted, expressing surprise at the lack of inventory buildup in domestic scrap plants. "Most months, domestic shippers are able to dispose of their intake," he said. "Export inventories would seemingly be quite large, but that is not the case. With the inbound flow of scrap down considerably, the exporters find it takes much longer to accumulate cargoes than a year ago."

Discussing the Australian and Far East ferrous markets, Crabb, also a ferrous division board member, noted that "continuing weakness in the U.S. and European markets has resulted in fierce competition for scrap sales in the Asia-Pacific region. Prices have come under pressure and demand has started to weaken in parts of the region." The fundamentals for the region, however, are still strong, he stated. "Although trading conditions are expected to remain difficult, any improvement in U.S. and European domestic consumption could tilt the scales back in favor of the supplier," he said. Even with an expected reduction in growth for 1992, the region could show a real growth rate of 7.5 percent in the next few years, which should support continued development in steel production and an increase in scrap demand, particularly in southeast Asia.

Division Board Member Osamu Yokota, Sumitomo Corp. U.K. Ltd. (London), said that Japan is experiencing its first decrease in steel production in five years. Electric-arc-furnace production was down 15 percent in the third quarter, and mills had indicated their intention to cut production by 20 percent in the fourth quarter. He noted that mills had built large inventories during the summer by taking advantage of cheap billet imports.

Uncertainty pervaded ferrous forecasts for 1992. Most executives expressed hope that India will again become a buyer of U.S. scrap and that Europe will reduce its scrap exports so the United States "can again become a more dominant supplier to the Far East, Pacific Rim, and Turkey," Goodstein said. Bird closed the meeting by asserting that, despite the current recession, there is not a world glut of scrap and the growing use of electric furnaces promises to increase scrap demand worldwide. In fact, he predicted, there could be an upturn in the market by the middle of 1992.

While the U.S. stainless business is not particularly good, the U.S. market continues to be stronger than that in Europe, according to Barry Hunter, Keywell Corp. (Port Elizabeth, N.J.) and chairman of the stainless steel and special alloys committee, who attributed the market's oversupply to reduced demand and expanded inventories that were built in anticipation of improved business in late 1991. "With this scenario continuing," Hunter said, "each month will reflect increasing inventories in many processors' plants, especially those geared for export markets, until consumer inventories, including distribution centers, begin to decline."

Committee member Sidney Greenberger, National Nickel Alloy Corp. (Pittsburgh), forecast that "during the remainder of this year and the first quarter of 1992, many of us look for a sluggish economy to limp along with little or no growth. Prices of scrap may weaken further in the period." He did point with optimism to the improvement in October exports, saying that "this augurs well for those of us in the nickel business." Greenberger predicted that the presidential election in 1992 will bring about a modest recovery sometime in the second quarter. "We expect our administration to do everything possible to jump-start the economy with a view toward re-election in November," he said.

Austin Merrills, Ireland Alloys Ltd. (Hamilton, United Kingdom) and a committee member, as well as chairman of the BIR public relations committee, reported that the price drops he predicted at the BIR's meeting in May took place in June, and the prices continued to erode 20 to 30 percent between May and October. "The only bright spot in an otherwise depressing scenario is that demand remained on the steady side of poor," he asserted, observing that future business appears extremely difficult. "Indications are that over the next six months we will have a continuing, though perhaps less dramatic, fall in prices," he said, noting that this may be combined with a reduction in demand by United Kingdom steel mills.

At the environment committee meeting, Pierre Lieben, principal administrator of the Organization for Economic Cooperation and Development's (OECD) environment committee of the waste management policy group, discussed the OECD's distinction between waste destined for disposal and scrap destined for recycling, as well as its three-tiered classification system—green, amber, and red—to control materials being shipped among OECD member countries for recycling.

BIR Secretary General Francis Veys pointed out that movement of materials on the amber list would require written consent between the importing and exporting countries, a requirement that would likely restrict spot transactions of metal ashes and residues. Lieben explained that the lists would be continually reviewed, but some regularly traded items on the amber list, such as lead-acid batteries, would not be moved to the green list.

The problem facing the recycling industry, Veys asserted, "does not come from the lack of understanding from the OECD secretariat representatives but from the environmental ministries of the member states." He called for a public relations and lobbying effort at the national level by member federations to educate their environmental ministries.

In an effort to reduce disposal and encourage recycling activities and recovery technology, the Danish government added a tax on landfilling and incineration in 1987, but recent changes have made recycling residues eligible for a two-thirds reduction on the disposal tax.

According to the new chairman of the BIR 's municipal waste committee, Anders Jungersen, Uniscrap A/S (Copenhagen, Denmark), the usual tipping fee landfill shredder residue was 100 krone (approximately $16) per ton. A 40-krone-per-ton tax ($6.50) was added in 1987, and there were negotiations in 1989 to increase the landfilling tax to 120 krone ($19.50). "The Danish recycling industry took part in the negotiations," Jungersen said, "and argued that the increase should not be valid for the recycling industry." The new tax, if applied to recycling operations, would only serve to hinder recycling, not promote it, he explained.

The government agreed, increasing the tax to 130 krone ($21), but allowing a refund of two-thirds of that amount for wastes originating from the recycling industry.

"The Danish government recognizes the importance of shredding as being environmentally friendly," Jungesen explained, pointing out that all recycling operations that process scrap and all industries that manufacture items using secondary raw materials are included in the Danish tax-refund system.