CARI Celebrates 60 Years

Founded in 1941, CARI has grown through war and peace, and now finds itself well-positioned for the future.

By Robert L. Reid

Robert L. Reid is managing editor of Scrap. 

In the spring of 1941, Canada had been fighting in World War II for nearly two years. Its soldiers and industry—including the scrap sector—played an indispensable role in the battles being fought in the waters of the Atlantic, the deserts of North Africa, and the skies over Europe. But Canada’s government felt that the country’s recyclers could contribute even more if their activities were better coordinated. So it asked recyclers “to organize themselves to more effectively assist in the war effort,” explained Sheldon Kumer, president of the Canadian Association of Recycling Industries (CARI) (Ajax, Ontario), during the group’s 60th annual convention, held in June at the Fairmont Tremblant in Mont Tremblant, Québec.
   Responding to the government’s plea, Canadian recyclers formed their first national trade association in May 1941. And though the group’s name has changed over the past 60 years—it began as the Canadian Secondary Materials Association and didn’t become CARI until 1973—the mission has remained the same: to maximize the effectiveness of recycling in Canada.
   Fortunately, such recycling no longer focuses on turning scrap into bullets and bombs. Instead, CARI can work on the more peaceful aspects of its mission, such as supporting the government’s federal recycling policy, helping members reduce costs and increase business, and growing—the group has set an ambitious goal of expanding from 176 members today to 200 by year’s end.
   And while diamonds, rather than a recyclable metal, are the traditional symbol of one’s 60th anniversary, the precious stones do at least represent CARI’s sound financial status, which in turn helps position the group for a strong and hopefully sparkling future.

Running a Recycling Business
To help its members comply with Canada’s environmental regulations, CARI spent the past several years developing an Environmental Management Handbook, which was discussed by Barry Thompson of Thompson Associated Technologies (Dundas, Ontario).
   The handbook, designed to assist recyclers in assessing their facilities and establishing the necessary environmental policies, procedures, and practices, presents information in an easy-to-use checklist format, with an emphasis on preventing pollution and documenting what actions have been taken to protect the environment, Thompson explained. That way, “If there’s a problem in your neighborhood, you’ll have the records to show that it wasn’t your doing,” he noted.
   The handbook, which will be distributed to CARI members as soon as it has been translated into French, provides checklists to help recyclers quickly determine the priority status of each environmental activity (based on each facility’s circumstances and the potential environmental impact involved); what action is—or isn’t—under way; when the action should be completed; how complete it currently is (in percentage form); and what further action might be needed.
   The handbook’s chapters include sections on environmental management systems, site activities, transportation, material inspection, material storage, processes and equipment, several appendices that provide information on current federal, provincial, municipal, territorial, and even international environmental legislation, as well as information on the government offices that enforce those laws.
   The checklists focus on items such as—under the equipment heading—whether “operators are trained in the correct waste disposal procedures” or whether “leachate collection is in place” and “surface and ground water is tested regularly.”
   Environmental issues were just one topic covered during the session on “Running Your Business.” A financial risk management technique and the latest developments from the electronics world were also highlighted.
Profits Through Options. Christopher Foster of ScotiaMcLeod (Toronto) examined how the financial tool called options can help scrap processors profit from their inventories even during the current depressed markets.
   “Everyone has to hold inventory,” Foster said. “Holding inventory is what keeps customers coming back. If you don’t have inventory, you don’t have anything to sell.” So, he stressed, what recyclers need to know “are ways to use options to make that inventory turn a yield.”
   An option, Foster said, “gives the buyer of the option the right to buy or sell an underlying commodity for a fixed amount of time at a fixed price—the strike price.”
   As an example, a “Sept 80 copper call option @ .50 cents per lb.” means that the person buying the call has the right to buy copper at a strike price of 80 cents a pound for a cost of one-half of 1 cent a pound. 
   Conversely, the person “granting” the call has the obligation to provide the buyer with the underlying commodity—in this case, Comex copper—at 80 cents, for which he receives the premium payment of one-half of 1 cent a pound.
Market speculators tend to buy option calls, Foster noted, while people holding inventory, like recyclers, want to sell calls to avoid falling prices and limit their ongoing overhead expenses. He offered the following example:
On June 1, 2001, a recycler has 500,000 pounds of contained aluminum in inventory, with LME aluminum valued at $1,512 (U.S.) a mt. So the recycler sells options against roughly half that amount, which translates to selling five October 1525 aluminum calls for $56 a mt, or roughly $7,000 (U.S.). 
   Each LME contract represents 25 mt, so five calls are as close as he can get to the 114-mt halfway point in his inventory. 
   Assuming the recycler re-establishes this option position throughout the year, he’ll end up with an 11-percent yield on his inventory, Foster concludes.
But remember that it’s wise to sell options against only a portion of your inventory—say, one-quarter or one-half at the most. That’s because the exchange-traded commodities on which the calls are based do not track each other exactly. “If you followed this strategy against 100 percent of your inventory and [LME] aluminum went up in value but your aluminum inventory didn’t go up by the exact same amount, you could run the risk of net-net losing money,” Foster warned.
   He also noted that while options can be a useful tool, they are not an easy subject to comprehend. “If you misunderstand one piece of terminology, it completely skews the whole thing,” he said. 
To help evaluate the price of various base metal options, Foster recommended visiting www.numa.com/cgi-bin/numa/ calc_op.pl, which he described as a “free online options calculator.” (For more on options, see “Options 101” on pages 51-56.)
Embrace Computer Change. Larry Galbraith of Klarmann & Partner Inc. (Audubon, Pa.) explored computer trends and the recycling industry, focusing mainly on two Microsoft products—Windows XP and Office XP—because, according to Microsoft, 87 percent of all people using computers are using some version of Office or Windows.
   Under the latest version of Office, he noted, a new document-recovery feature will enable users to retrieve material even if it hasn’t been “saved.” Another new feature, sharepoint, will enable people at different locations to examine the same document and make comments as if everyone were sitting around a conference table in the same room, Galbraith said. Likewise, an online collaboration feature of the newest Windows software is tied back to the Office product. It will be offered under a fee-for-service system that Galbraith describes as a “risky” move by Microsoft since it requires users to register the software or else it stops working.
   Another Windows feature will permit audiovisual conferencing that, for traders, “doesn’t exactly show you the other guy’s sweaty palms when he’s trying to negotiate the price—but it’s not too far removed from it,” Galbraith said. The feature, however, is dependent on certain other technologies still under development and requires users to have good bandwidth and high-speed Internet access.
   Galbraith also discussed extensible markup language (XML), a development that could enable scrap dealers to receive any sort of electronic invoice from their customers and automatically extract the vital information—such as weight and price—no matter where that data is located in the document. A similar automatic-bid technology could electronically search for bid information from consumers, check them against your current inventory plus the prevailing market conditions, then present a report that says “you have enough product to sell at this price and this is what the market looks like—do you want to proceed or stop?” Galbraith explained.
   Someday, Galbraith added, computer technology will even enable recyclers to track their shipments through a city on an intersection-by-intersection basis, noting where traffic is tied up and easily redirecting trucks to a better route to ensure on-time pickups or deliveries.
   “Change will come faster than ever,” he noted. “Don’t be afraid of it—embrace it. Be curious. Try new things.”
   E-Commerce—Dead or Alive? The “Running Your Business” session ended on a somewhat unusual note when the scheduled talk on e-commerce from a representative of ScrapSite went ahead in a somewhat truncated fashion—despite the fact that the ScrapSite official was not there and, indeed, ScrapSite itself had shut down the week before when its parent company, Pittsburgh-based MetalSite, suspended 
operations.
   Instead, CARI First Vice President Howard Sherman of Ferrous Processing & Trading Co. (Detroit) presented general observations on e-commerce and the scrap industry, gleaned from what would have been the ScrapSite presentation.
   Though e-commerce providers clearly haven’t made the inroads into the scrap industry that they expected, Sherman stressed that e-commerce itself has much to offer recyclers, including a better understanding of prices and costs as well as a new look at markets. 
   For example, if, e-commerce helps a small, locally focused processor find better freight rates, that processor might discover that he can ship material to markets 3,000 miles away for the same price he used to send shipments just 500 miles, Sherman noted.
   He also predicted that scrap dealers would reconsider e-commerce when it catches on with their consumers. “When the consumers embrace e-commerce,” he said, “we’ll find a way to embrace it, too.”

Outlook for Canadian Recycling
Unfortunately for e-commerce providers, even consumers during the Mont Tremblant conference did not seem eager to trade scrap metal electronically—at least not the three consumers at the session “Canadian Recycling Industry Outlook.”
   The representatives from a cross-section of ferrous and nonferrous consumers—including IPSCO Inc. (Regina, Saskatchewan), Ispat’s Sidbec-Feruni recycling division (Contrecoeur, Québec), and Wabash Alloys Ontario (Mississauga, Ontario)—all emphasized their desire to provide suppliers and customers with information electronically but were united in saying that they don’t expect to buy any scrap over the Internet for the foreseeable future.
   “We still like the personal touch” of traditional scrap trading, explained Marcel Attardi, Wabash’s manager/buyer for Europe, during a question-and-answer period, with the Ispat and IPSCO representatives expressing similar thoughts.
   Secondary Aluminum’s Messy Situation. During the regular presentations, Attardi explored the current “mess” in which the secondary aluminum industry finds itself. Excess capacity is a major problem, he said, pointing to figures that indicate an actual demand for secondary aluminum of more than 3.7 billion pounds compared with reported capacity of roughly 4.3 billion pounds—leading to an overproduction of more than 590 million pounds. Moreover, the total excess capacity is probably larger because the 2000 figures don’t include ingot from the former Soviet Union, RSI producers, various metal traders, and other sources, he added.
   Automotive demand accounts for 65 percent of secondary aluminum capacity, Attardi noted. Unfortunately, the actual demand by the automakers for recycled aluminum has not kept pace with industry projections. In the mid-1990s, for instance, analysts expected car companies to produce 15.5 million vehicles annually by 2000, with each of those vehicles incorporating an average 216 pounds of secondary aluminum. Instead, Attardi said, while the carmakers exceeded the production estimates—turning out 15.8 million vehicles last year—their secondary aluminum usage only reached 154 pounds per vehicle.
   Though Attardi did not have an explanation for why secondary aluminum fell short of its mark, he did note that the 154-pound average reached last year does represent an increase of 34 pounds per vehicle over 1994’s 120-pound average. Thus, he remained confident that secondary aluminum’s role in automobile production would continue to grow.
   Steel in Crisis. Yvon Campeau of Ispat’s Sidbec-Feruni recycling division focused on the “crisis” hitting the ferrous world. He blamed the crisis on two key problems—soaring natural gas prices, which tripled in the first half of the year, and collapsing steel prices caused by “substantial foreign imports into North America.”
   In the United States, Campeau noted, steel imports reached 133 million mt, or roughly 35 percent of apparent consumption, while in Canada roughly 20 million mt of steel imports represented 45 percent of apparent consumption. The impact on steel prices has been dramatic, he said. Rebar, which was selling for $4.13 (Canadian) a short ton in the first quarter of 2000 fell to $3.39 a short ton in the first quarter of 2001.
   Though Ispat is filing complaints over what it sees as unfair trade practices, Campeau conceded that such efforts easily take eight or nine months to be resolved, there’s no guarantee of relief, “and in the meantime, you’re hemorrhaging.”
   To cope, Ispat has taken several actions, including shutting down its DRI operations in Québec, importing DRI from its Trinidad operation (where natural gas is much cheaper), and increasing its scrap utilization, Campeau said. And while he did express optimism that steel prices will recover in the second half of 2001, he also asserted that the North American steel industry remains far too fragmented. As an example, he noted that Ispat is considered the seventh-largest steel producer in the world yet controls only 2 percent of the market.
   A Local Scrap Approach. Peter MacPhail of IPSCO discussed his firm’s scrap-buying strategy and expressed support for President Bush’s recent decision to seek an International Trade Commission investigation of steel imports—even though Canada’s own exports to the United States will be scrutinized. The Bush move is promising, MacPhail noted, because it also seeks to eliminate inefficient capacity worldwide and reduce the market impact of government subsidies.
   IPSCO, which invested roughly $1 billion (U.S.) in the past decade to improve its minimill steelmaking processes, tries to buy scrap locally and encourage local consumption of its steel products since this “brings more scrap back into the system and helps reduce transportation costs,” MacPhail explained.
   IPSCO, which operates electric-arc furnaces in Western Canada and Iowa with another under construction in Alabama, uses few scrap complements such as DRI or pig iron. In fact, the company specifically designed its U.S. operations so they don’t need the low-residual iron from such complements. “We can use it,” MacPhail said, “but we don’t have to have it.”
   Looking long-term, MacPhail expressed some interest in a new process for melting DRI produced by coal-based processes. He also noted that some change is coming to the North American steel industry as aging blast furnaces reach the end of their useful lives. This trend could affect the scrap industry in several ways: Blast-furnace operators, for instance, could decide to run the furnaces until they essentially fall apart, which would boost demand for pig iron. Or they could replace their blast furnaces with electric-arc furnaces, boosting demand for ferrous scrap. Or they could just convert their facilities to rolling mills, thus creating new supplies of scrap.
   Economic Recovery ‘Not Far Off.’ The outlook session also featured a presentation by David Longworth of the Bank of Canada (Ottawa), which plays roughly the same role in Canada that the Federal Reserve does in the United States.
   Longworth reiterated the bank’s prediction from November 2000 that Canadian economic growth will pick up in the second half of 2001 and “rise somewhat further in 2002 to slightly above the economy’s growth potential.” Canada’s output should grow 2.5 percent this year, followed by growth of more than 3 percent next year, he explained.
   Specifically, Longworth forecast that “nonenergy commodity prices, including nonferrous metal prices,” will pick up by year’s end and continue their recovery into 2002. “How steel prices play out,” he added, “may depend on the politics of antidumping rulings” as well as what happens in the worldwide durable-goods industries.
   The main risk to the Canadian economy, Longworth noted, remains the possibility that the U.S. economic slowdown could last longer than anticipated. The Bank of Canada will also keep an eye on rising energy prices. But overall, he said, “the pickup in the economy is not far off, and Canada is well-placed to take advantage of the challenges and opportunities of accelerating globalization.” •