May/June 1997
It was a birthday party for the record books.
ISRI celebrated its 10th anniversary in grand style March 15-19 at the Mirage in Las Vegas, attracting an estimated 3,250 recyclers and offering its largest exposition ever.
The event’s theme—“A Decade Committed to Pride in Our Industry”—dovetailed perfectly with the goal of ReMA President James A. Fisher of Fisher Steel and Supply Co. (Muskegon, Mich.) to promote pride among scrap recyclers. This pride, he asserted, will motivate recyclers to “perform at our very highest level.”
Pride will also lead more recyclers to assume volunteer leadership roles in ISRI, which is essential to “make this a stronger trade association with a more forceful national voice, and a better industry all around,” Fisher asserted. In this regard, he likened ReMA to a tree and each volunteer leader to another ring around the tree, concluding that the association “is bigger, better, and stronger for the added growth.”
The convention certainly gave recyclers ample opportunities for personal and professional growth, offering an array of business workshops, commodity spotlights, networking receptions, equipment and service exhibits, and social events.
Tracking Business Trends
Closing in on Consolidation. The scrap industry is in the incipient stages of massive consolidation built around regional strategies, said Paul Higbee of B.T. Securities Corp. (New York City) at a session on recycling industry consolidation trends. “There are powerful incentives to have your industry change its profile and composition,” he asserted, adding, “These trends will not only not go away, but they will accelerate.”
Part of the recent acquisition and merger mania can be attributed to companies’ unprecedented access to capital and the benefits of achieving economies of scale. Pressure from consumers that are faced with rapidly changing technology, the weight of uncertain commodity prices, and tough steel and copper financial environments have brought about profound changes, Higbee said. In the past 12 months, for instance, more than 10 percent of the ferrous scrap industry has changed hands, representing $450 million of value. “These are big dollars,” he said, noting that new, acquisition-hungry public companies such as Metal Management Inc. and Recycling Industries Inc. are “becoming big players. It’s a significant activity by anyone’s standards.”
While companies formed with the express purpose of consolidating an industry are new to the scrap business, they are common in other business sectors. “It’s a phenomenon that many other industries have experienced and it’s a signpost for the scrap industry as to the many opportunities that are available,” Higbee said.
It’s also a signpost to Wall Street, he asserted. “Until recently, there haven’t been serious plays to appreciate, but then we took a step back and realized we shouldn’t confuse a lack of visibility with a company not being powerful or having a lot of access to capital.” To wit, he estimated that more than $1 billion has entered the industry in the past year through acquisitions.
With each acquisition, the dynamics of the industry change, and recyclers should take stock of their companies now, Higbee suggested. “Given the fact that all of a sudden your neighbor could be selling out to a multimillion-dollar company,” he said, “you may have to look at acquisition in a different perspective.”
To survive in this new competitive environment, recyclers should look for partners with considerable financial assets. The name of the game, Higbee said, is to create value by becoming a regional powerhouse, adding that this “will only increase the value of your company.”
Higbee also discussed corporate valuation procedures, outlining three principal steps:
- assessing net asset value, or assets on the ground compared with liabilities and debts. Buyers will usually pay four to six times a company’s net worth, Higbee noted;
- looking at cash flow multiple value. This is where buyers must see the company “as an ongoing business with annual cash flow, and with customers and success in the marketplace”; and
- identifying to whom the firm has value.
Conducting Business by Computer. David J. Joseph Co. (Cincinnati) recently surveyed 75 suppliers and found that all used computers in their day-to-day business and nearly three-quarters were interested in expanding their use to the Internet. Those results, said the firm’s Jay Martz, indicated “that it was worthwhile to move our industry toward electronic data interchange.”
Electronic data interchange, or EDI, is the electronic communication of business documents and information, including fund transfers, e-mail, and more.
Among its advantages, EDI can improve customer communication and the overall accuracy of information, Martz said, noting that it can also help recyclers streamline their businesses, reducing paperwork as well as administrative and labor costs.
Two other notable advantages are that customers can place orders via EDI, which can significantly reduce the order cycle time, and EDI gives recyclers more financial control. “You know when the information got to your client,” said Martz, “and, more specifically, when your money will arrive.”
Despite its benefits, EDI has significant drawbacks related to speed and security, Martz conceded, noting, “The Internet is not quite there yet, but it’s coming around. Until these issues are addressed, it won’t be accepted.”
There to allay some fears was Jeff Burns of CSX Transportation Inc. (Jacksonville, Fla.), which allows its clients to conduct business over the Internet. Through direct hookup, CSX can access any portion of a client’s file, including tracking railcars and providing estimated arrival times, he said. Clients, meanwhile, can call up prices and schedules on their computers, as well as carry out freight and service management.
As for safety, a series of passwords and private numbers ensures that only clients can access their files, asserted Burns.
The Future of Auto and Appliance Recycling. While shredder operators are recycling automobiles made primarily in the 1980s or earlier, long-range planning is under way to increase the recyclability of cars—as well as appliances—that won’t enter the recycling stream until around 2019.
Such was the focus of three speakers who reviewed the steps being taken to assure that the recycling of automobiles and appliances continues into the future. One topic was the Vehicle Recycling Partnership, a collaborative project of the Big Three automakers formed to research ways to increase the recyclability of cars.
Today, about 75 percent of an average car is recycled, with the remaining 25 percent ending up as auto shredder residue that is usually landfilled, reported Roger Heimbuch of General Motors Corp. (Warren, Mich.). Current research focuses on increasing the recycled percentage in automotive components and finding reuse or recycling alternatives for shredder residue. “We’ve come a long way,” added Claudia Duranceau of Ford Motor Co. (Dearborn, Mich.), noting that much research is being devoted to improving the recyclability of the specialty metals, plastics, textiles, and glass in today’s cars.
Part of this, she said, is aimed at defining what can be called recyclable and developing global standards for all automakers. Input from recyclers will continue to be important to these research efforts, Heimbuch said, noting, “We understand that the decisions we are making now will affect the scrap industry in the future, so we want to include them in the decision process and welcome information from them.”
Despite current research efforts, however, there are limitations on designing cars for recycling, Heimbuch stated. Neither consumers nor manufacturers, for example, are willing to sacrifice fuel efficiency, safety, economy, or quality for a car that is more recyclable or one that contains recycled parts.
Moving on to shredders’ other principal feedstock—appliances, or white goods—Steven Willis of Whirlpool Corp. (Benton Harbor, Mich.) noted that the company is researching more-recyclable design options and attempting to “build equity and value into appliance end-of-life.”
As with cars, however, there are limitations. For one, Willis explained, recyclability is a low priority for consumers, who are much more concerned with an appliance’s energy efficiency. In general, energy consumption—not production, distribution, and end-of-life considerations—is the most significant environmental concern for appliances, he said.
Even so, Willis asserted, recyclability is important to appliance manufacturers, which have formed the Major Appliance Resource Management Alliance to help boost the recycling rate of white goods beyond the current 75 percent.
Meeting the ISO 14000 Standards. With the introduction last year of the new environmental management system standard, ISO 14000, the recycling industry has been abuzz about the possibility that registration to the system looms on the horizon.
ISO 14000 encourages companies to take environmental responsibility for their products and processes rather than having a regulatory body prescribe environmental management guidelines, said James Bytnar of SRI Quality System Registrar Inc. (Wexford, Pa.).
The standard has two parts with several facets, he noted. Part one includes organization and process standards, with 14001 being the specification standard of greatest use to recyclers. Part two’s product-oriented standards involve environmental labeling and life-cycle assessment.
There are a number of incentives to seeking ISO 14001 certification, said Jack Goldman of Bryan Cave L.L.P. (Washington, D.C.). For example, registration can improve a company’s public and community relations or win over public officials and emergency personnel. Registration can also enhance efficiency by fostering cooperation and offering quantifiable data on real costs, he maintained. There are also regulatory and enforcement incentives. For instance, Goldman said, the EPA is awarding grants for pilot environmental management projects, and certification has the potential to change a company’s relationship with the EPA in the form of “fewer inspections, less frequent monitoring for various permits, and perhaps more lenient penalties if a violation is found.” The ultimate incentive, however, is that scrap consumers could require their suppliers to be registered, he noted.
Registration takes a lot of planning and time, Goldman asserted. The first step is to conduct a self-audit in which you “compare your current system to the standard to identify gaps” in your operation, then develop an environmental policy.
This self-audit includes identifying the “activities, products, or services that can interact with the environment” and then determining their potential effects, he said. Among the considerations should be how significant the effects could be, including the frequency, duration, seriousness, probability, liability, correctability, and the public relations repercussions.
At this stage, you can determine what can change, but be sure to assess the legal issues, business concerns, and technological feasibility of achieving your objective, Goldman said.
Once the self-audit is complete, the registration process can officially begin. It starts with a pre-audit and basic fact-finding visit by a third-party auditor, who provides a pre-assessment that outlines which standards aren’t being met, Bytnar noted.
The final step is registration. It’s essential, he stated, to select a registrar who is accredited for the scrap recycling industry, located within a reasonable distance of your facility, able to meet your needs and schedule, well-known and respected, and capable of establishing a compatible, open relationship with your firm.
Changes Afoot at DRMS. Recyclers who purchase scrap from the government can expect a few changes at the Defense Reutilization and Marketing Service (DRMS), reported the agency’s Bill Lovejoy.
For starters, the DRMS is moving its international sales office from Memphis to Battle Creek, Mich. The size of the staff in Michigan will be smaller and less experienced than the Tennessee staff, noted the agency’s Chris Johnson. The office will also be taking on more areas and will manage a broader range of materials, including recyclables, ships, and hazardous materials.
DRMS also has a new Internet site at www. drms.dla.mil, which provides up-to-date DRMS information and allows buyers to submit bids online, Lovejoy said.
In other news, the agency is considering establishing enterprise management opportunities and joint venturing partnerships with recyclers, Lovejoy continued, asserting that the program “offers a significant opportunity for recyclers to be the sole purchaser of particular products in their region.” DRMS is encouraging recyclers to present proposals and share ideas about potential alliances. “We’re very serious about this,” Lovejoy said. “It’s an opportunity you don’t want to pass up. This is where the future of scrap disposal is headed.”
Another new regulation gives some installation commanders the authority to directly sell certain materials—such as wood, glass, and paper—rather than marketing them through the DRMS, Lovejoy noted.
Other changes in the works include elimination of the late payment penalty fee and an extension of payment from seven to 30 days after purchase, he said.
The ABCs of Recycling UBCs Safely. Safety is the number-one concern of aluminum scrap consumers when recycling UBCs, agreed three aluminum executives at a session on UBC quality.
One major safety hazard is the presence of used hypodermic needles inside UBCs, noted F. Robert Hubbard of Imco Recycling Inc. (Rockwood, Tenn.). “All sorts of things can come from them, and none of them good,” he said, adding, “It’s something that needs to be worked on, and we have a shared responsibility in the industry to communicate that.”
Other contaminants pose hazards as well, especially excess moisture and dirt, which “might be the most difficult contaminant to handle and the most important one,” said Bryan Steverson of Aluminum Co. of America (Knoxville, Tenn.). Not only does dirt escalate costs, but its presence brings in questions of quality, environmental concerns, and health. Dirt can be minimized through stepped-up awareness and training, improved segregation, and use of cleaning equipment such as trommels and vibrating conveyors, he suggested.
To help combat UBC safety and health concerns, some aluminum consumers such as Imco have adopted a scrap notification program developed by the Aluminum Association (Washington, D.C.). In the program, participants can “reject loads for health and safety reasons,” Hubbard said, noting that Imco has rejected two loads in the first six months of its program. Details on problem loads are reported to the Aluminum Association, which routes the information to all participants in the program.
For its part, Alcan Rolled Products Co.-Recycling (Berea, Ky.) uses a four-pronged process involving quality surveys and an audit team that does periodic inspections of receiving docks to make sure materials are treated properly, noted the firm’s Ron Marchbanks. The audit team also conducts on-site evaluations of suppliers. “It’s a major undertaking,” he acknowledged, “but it’s very much a partnership situation. We often find that it’s not a lack of desire to do what’s right, but rather a lack of knowledge. We need to do what’s right together.”
Taking a Look at Management Options
Building a Committed Work Force. It’s essential for scrap recyclers to know how to recruit, retain, and motivate quality employees, asserted four recycling executives at a panel discussion on building a top-notch work force. “There’s no more important part of business life than having good people. They can literally make or break you,” asserted Arnold Gachman of Gachman Metals & Recycling Co. (Fort Worth, Texas).
How do you recruit great employees? First, look within your current ranks for qualified candidates and promote from within, the speakers suggested. If you must look outside for talent, the best recruitment tool is your company’s good reputation and word-of-mouth promotion from current employees, offered George Adams of Adams Steel (Anaheim, Calif.).
In addition to running employment ads in newspapers, recyclers can also find employees through search firms or use temp agencies to give potential employees a trial run before hiring them permanently.
After promoting or hiring employees, the next challenge is ensuring they are committed and motivated. One way to do this is to “give employees control over how much money they make,” Adams said. “Give them the ability to make more by being creative.” Many recyclers, for instance, offer financial incentives such as commissions, production bonuses, and gain-sharing, in which employees can split cost savings with the company.
Commercial Metals Co. (Dallas), a publicly traded recycler, also builds employee commitment by offering profit sharing, a 401(k) plan, stock options for managers, and an annual stock purchase plan for all employees in which they can buy stock at a 25-percent discount and pay for it through payroll deductions, noted the firm’s Bert Romberg. Additional financial perks might include access to a credit union and company loans to long-term employees, Gachman noted.
Other important motivators for employees are the opportunity to grow in their jobs and a corporate culture that promotes a “self-empowered work force in which employees make all the decisions themselves,” said Steve Brown of U.S. Zinc Corp. (Houston).
Companies can also build commitment by investing in employees through training, either through outside seminars or internal programs, such as those offered by U.S. Zinc’s in-house Zinc Academy.
It’s also important not to overlook human touches such as celebrating birthdays and employment milestones, as well as having group parties and a staff newsletter to build unity. Employees also appreciate it when the company focuses its charitable giving on communities in which they live, noted Romberg.
Budgeting for Better Cost Control. Before scrap recyclers can conquer their costs, they have to know what their costs are and learn how to manage them.
A formal budget is one key component of achieving total cost management, said Chris Charlebois of Luntz Corp. (Canton, Ohio). A good first step is to draft a budget mission statement, outline your budgetary goals, and establish benchmark standards against which to measure your progress. “In the budgeting process, standards are absolutely imperative,” he said. “Without standards, you can’t measure yourself.”
Next, decide which type of budget to use—“It’s not just a case of taking a Microsoft Excel worksheet,” he said—and set a schedule and assign responsibilities for budget work and cost centers. “Take time to really look at your company or division,” Charlebois emphasized. “You’ve got to sit down and plan what you’re doing.”
Once the budget process is established, it must be implemented conscientiously. “Budgets should accurately reflect expenditures, and you should continually improve the accuracy of your budgeting process,” he said. “After doing your budget, don’t put it in your drawer. Make sure it becomes a working tool for you and your employees.”
A final step is to evaluate the budget process and the information it provides, learning the lessons it offers and taking corrective action when necessary, such as merging operations or retiring a piece of equipment. “It’s not one of these things where you do the job and you’re done,” Charlebois said.
Getting Down to Specifics. The goal of most cost activities in the scrap industry is to determine a per-hour, per-pound, or per-ton operating cost. Bill Lowery of Annaco Inc. (Akron) provided a closeup look at how to calculate the cost of operating a crane.
To accomplish this, you must track the number of hours the crane operates and the number of hours it accomplishes productive work. Together, these numbers will enable you to determine the crane’s productivity percentage.
Next, tally your fixed costs—including depreciation, insurance, personal property tax, and so on—and your variable costs such as fuel, oil and antifreeze, in-house maintenance, and outside maintenance and materials, among others. Adding these fixed and variable costs gives you your total costs.
It’s also essential to include overhead costs in the overall cost equation. Utilities, rent, office administrative expenses, security, liability insurance, track and yard maintenance, and accounting and legal fees should all be accounted for. “Sometimes these costs don’t get figured in,” Lowery said. “Overhead is significant. The important concept is that overhead costs have to go somewhere.”
Once overhead costs are included, you can get a more accurate reading on the crane’s total cost per production hour.
A Cumulative Approach. Frank Giglia Jr. of Allied Scrap Processors Inc. (Lakeland, Fla.) reviewed his firm’s long-term, cumulative approach to maintaining cost data. The company keeps a comprehensive list of all costs on each piece of equipment. These costs provide per-hour “manufacturing” cost information to its traders, outlining its operating margin and, hence, assisting them in their purchases and sales. “The cumulative history is where we get our cost per hour,” said Giglia. “We don’t focus on shorter time periods because there are too many variables. We don’t want to give our traders spikes. We want to give them information they can use to make trades every day.”
His firm subscribes to the philosophy of including all costs to get the most accurate accounting of average cost per employee hour, average operating costs (per pound, per ton, per hour, and so on) for each piece of equipment, and—ultimately—its overall profit and cost analysis.
In the end, knowing your cumulative overall costs enables you to determine your overall gross margin and break-even point, Giglia said.
An Argument for Leasing. It’s no mystery that many scrap recyclers prefer to buy equipment rather than lease it. But that’s an outmoded Depression-era mindset that overlooks the potential benefits of leasing, asserted Henry Crystal of Charter Financial Inc. (New York City).
In essence, an equipment lease is simply an arrangement to pay for equipment as you use it. Though leases incur interest, “the act of delaying payment provides capital for purchases of raw material, hedging through terminal exchanges, and outright production of cash profits,” Crystal said.
Today’s leases can offer a host of benefits, including no credit covenants, no dividend restrictions, and no capital expenditure or acquisition restrictions, as well as capped legal costs and competitive fixed rates, he noted.
Given these factors, Crystal summed up, “where it might seem prudent to make an outright purchase, in point of fact the numbers indicate that leasing is a much better alternative.”
An Ounce of Asset Protection. In today’s world, no one is immune from lawsuits and the legal system cannot be counted on to deliver impartial justice, which means one’s personal assets are potentially at risk. It’s essential, therefore, to take steps to protect them through an asset protection plan, said Barry Engel of Engel & Rudman P.C. (Englewood, Colo.).
Asset protection is “the process of organizing one’s assets and affairs in advance so as to guard against risks to which the assets would otherwise be subject,” Engel defined, stressing that asset protection, like insurance, must be implemented before you need it, when there are no lawsuits “pending, threatened, or expected.”
Which assets to protect and at what amount depends on personal circumstances and goals. Also, different assets will require different protection strategies, Engel noted. Fortunately, there are many planning vehicles, including gift-giving, Swiss annuities, a limited partnership and its progeny, a domestic trust, a foreign situs asset protection trust, and expatriation.
The goals of such planning vehicles are to protect your assets from risk while allowing you to maintain maximum control of and benefit from the assets. There are two important caveats, however: If you keep assets within your reach, they’re usually still within reach of creditors, and no asset protection plan can make you “bulletproof,” Engel said.
Still, it is possible to secure a high degree of protection and still enjoy a high measure of control, benefit, and flexibility, depending on the planning vehicle used, Engel said.
Commodity Markets Take the Spotlight
Aluminum’s Prospects Bright. The aluminum market is staging a comeback in 1997 and is in for exciting growth in the next two and a half years, asserted J. Clarence Morrison of Prudential Securities (New York City) at the aluminum spotlight.
In the past two years, the aluminum market suffered from oversupply, with new primary and secondary supply rising 6.8 percent in 1996, exceeding consumption growth of 4.4 percent, Morrison noted. Consumption was flat due primarily to massive destocking by consumers and slower worldwide economic activity, said Eugene Greenberg of Alumax Materials Management Inc. (Norcross, Ga.).
By late 1996, however, consumers had overdone their destocking, leading to a restocking phase that could extend “through the end of this year and on into part of 1998,” Greenberg said.
Thus far in 1997, world aluminum demand has jumped more than 4 percent thanks, in part, to strong U.S. and world economies (except Germany and Japan), which are “creating the beginnings of a worldwide industrial thrust,” Morrison said.
In 1997 and 1998, new primary and secondary supply may rise only 3.7 and 1.6 percent to 29.5 million and 30 million mt, respectively. World consumption, meanwhile, is expected to grow faster at 4.2 percent to 29.4 million mt in 1997 and 3.7 percent to 30.4 million mt in 1998, Morrison said. This supply-and-demand scenario could bring about a 464,000-mt deficit in 1998.
Also, inventories have started to decline 50,000 mt a month and could fall to 3.95 million mt by year’s end and 3.6 million mt in 1998, reported Morrison. If so, the stock-to-consumption ratio would begin to decrease from its recent level of 64 days to the “more desirable range of 40 to 50 days” in early 1999, Greenberg said.
Another important supply consideration is that producers are expected to revive about 200,000 mt of idled capacity this year and 400,000 mt in 1998. An additional 1 million mt of new capacity could come on-stream in the next two years, which would bring total world capacity to about 33.5 million mt. “This is clearly manageable,” Morrison asserted.
Two wild cards, however, could reduce aluminum supply significantly, he noted: The possibility of sizable cuts in Russian supply—as much as 390,000 mt—and double-digit Chinese demand.
These market fundamentals promise a “generally favorable” outlook for prices in the next three years, Greenberg said, with Morrison venturing that LME average aluminum ingot prices could range between 74 and 77 cents a pound this year and rise to 83 cents in 1998.
A Copper Price Depression Ahead? The Western World copper market is going to become a bear in the next few years, with supplies shifting from deficit to surplus and prices falling significantly, predicted Robert Lesemann of Resource Strategies (Exton, Pa.) at the copper spotlight.
To show where the market is heading, Lesemann first reviewed the dramatic market changes in 1996. Western World copper consumption grew about 3.3 percent, while refined output expanded about 6 percent, leaving the market with a supply deficit of about 175,000 mt and a low stock-to-consumption ratio of 3.4 weeks.
Based on this tight supply situation, LME cash copper prices should have averaged $1.50 a pound for the year, he said. In reality, copper was $1.04. Much of this “aberrant behavior” can be attributed to the Sumitomo scandal and subsequent fears that “massive amounts of hidden copper stocks would flood the market.” Such fears actually pushed the market below 85 cents a pound last June, Lesemann said.
Though these fears have dissipated, copper prices still don’t accurately reflect market fundamentals due to the presence of large speculative hedge funds, he asserted. In his view, these funds build positions in anticipation of changes in market fundamentals rather than reflecting current fundamentals, and they are willing to risk a lot of money to short the market. The effect has been significant. “When speculative investment gets beyond a certain amount, it is no longer a bet on which way the market will move. Rather, it becomes the force that moves the market,” Lesemann explained.
Another inhibiting factor on copper prices is the expectation that the market will soon begin to shift into surplus. While Western World consumption should grow around 3 percent a year, refined output is expected to increase 5.5 to 6 percent this year, Lesemann said. Mine production will also grow 2.5 to 3 percent this year, with larger jumps expected in 1998 and 1999, when close to 1 million mt of new capacity is expected to enter the market. Adding to supply will be an estimated 580,000 mt of net exports from the Commonwealth of Independent States and Poland, or about 50,000 mt more than in 1996, Lesemann said.
Weighing these supply and demand projections, the market could show a surplus of 200,000 mt this year, Lesemann said.
If copper stocks rise as anticipated, the red metal could average $1.10 to $1.15 a pound in the first half but slip below $1 by year’s end, with the annual average settling at $1.08, he said. More ominously, if surpluses mount in 1998 and 1999, a “severe price depression” could develop, with copper falling to the mid-70-cent-a-pound range.
Despite his bearish predictions, Lesemann conceded that the market could see “one more price explosion before the party is over.”
A Brass Strip Mill Perspective. The U.S. brass strip mill market has been on a roll since 1994 and continues to face promising prospects in 1997, stated David Lang of Olin Corp. (East Alton, Ill.), a brass strip producer.
According to Lang, U.S. consumption of brass strip products has attained a new level, rising from about 1 billion pounds a year in the 1985-1993 period to about 1.2 billion pounds a year beginning in 1994. Adding to the market’s strength, imports of strip have declined significantly, falling from 33 percent of the market in 1985 to about 16 percent.
About the only detracting factor has been that strip production capacity grew from 1 billion pounds in 1985 to 1.4 billion pounds today, giving the market a capacity surplus and creating competition among producers, Lang noted.
The main challenge for brass strip mills is that they are under pressure from their customers to continually provide higher-quality products. “Consumers want more but don’t want to pay more,” Lang said, noting that “everything they want—more advanced technology, faster production, higher quality—takes investment.” These ever-increasing customer demands, coupled with the competitive brass mill market, has put strip producers in a profitability squeeze. “It is driving us against the wall,” Lang stated. “We have to be as cost-effective as we can. We have to make a profit.”
These pressures have forced mills to “continue to upgrade our material and continue to push our scrap suppliers to keep pushing quality,” he said. “The push is on to get it into a higher grade and higher quality consistently.” This situation is creating a new dynamic between scrap recyclers and brass mills. “The old days are gone,” Lang stated. “What you could ship to me two or three years ago, you can’t do today.” While conceding that quality assurance standards such as ISO 9000 and QS 9000 are becoming important to both scrap consumers and processors, “the real proof is what you deliver. The quality of what you do shows up at my door.”
The push for higher-quality feedstock will also likely spur production of pure and low-cost copper cathode using the solvent extraction electrowinning process. If this new supply emerges, the “inevitable” result will be “a lid on premiums for cathode and a ceiling on copper scrap prices,” he said, adding that “selling even good scrap at a premium over Comex will be a hard sell.”
Other trends to watch in the brass strip market are an increasing focus on exports, the potential effects of the Basel Convention on the trade of brass mill scrap, and the introduction of new brass alloys that contain exotic elements such as titanium and chrome.
A Steelmaker’s Story. The iron and steel spotlight kicked off with a look at scrap issues from the perspective of minimill steelmaker Nucor Steel Co. (Charlotte, N.C.).
Scrap is by far the largest of the mill’s melting costs, which explains why controlling scrap costs is crucial to its profitability. The bottom line is that electric-arc furnace mills like Nucor “don’t want to pay more for their scrap,” said Giffin Daughtridge of Nucor’s mill in Crawfordsville, Ind. The more minimills pay for scrap, the more difficult it is for them to compete against the ever-more-efficient integrated mills and the less competitive steel becomes compared with alternative materials, he said.
Scrap quality is another concern for minimills because the newer, faster electric furnaces require cleaner scrap, and mills need high-quality scrap to achieve higher productivity. Since 1991, he noted, the Crawfordsville mill’s tap-to-tap times have fallen from 100 to 60 minutes, with heats regularly being tapped in 50 minutes.
To address some of the concerns about scrap costs and quality, minimills are turning to alternative metallics such as DRI, HBI, and—in Nucor’s case—iron carbide. This pure feedstock has improved the mill’s tap-to-tap times, chemistries, nitrogen reduction, and energy costs, Daughtridge said. Currently, Crawfordsville uses iron carbide in 90 percent of its heats, with its January consumption totaling about 3,400 tons a week. Ideally, Nucor would like iron carbide to account for about 12 percent of its melt mix, with the material being supplied by its iron carbide production plant in Trinidad.
Focusing on Foundries. As with minimills, scrap is a crucial raw material for foundries. The drawback is it can present a range of problems in their melts, said Frank Headington of Neenah Foundry Co. (Neenah, Wis.). One important concern is the presence of residual elements. On the one hand, gray-iron foundries actually require some residual elements such as chrome, copper, tin, and phosphorus to produce the desired microstructure and mechanical properties in the metal.
Ductile-iron foundries, in contrast, have much less tolerance for variability in their feedstock and, therefore, require scrap that is essentially free of residual elements.
An equal concern is the presence of tramp elements in scrap, particularly coatings such as zinc, cadmium, lead, porcelain glaze, paints, and powders. “Dealing with these coating materials is one of the greatest challenges that industries using ferrous scrap have today,” Headington stated. Remelting these elements can ruin a heat, damage furnace refractories, present a health hazard to employees, and turn baghouse dust, wet sludge, and slag into hazardous materials. The melting of bulk quantities of these elements—such as large pieces of lead, aluminum, or brass—presents the “most extreme hazard” for foundries, resulting in steep decontamination costs, he said.
The presence of water or oil in closed containers also poses serious explosion hazards, particularly for electric furnaces, and the potential for radioactive sources in the scrap stream is also a rising threat. Melting a radioactive source can “render a manufacturing facility dead in the water for well over a month,” Headington asserted, suggesting that “radiation detection is a must for all scrap yards and ferrous scrap users.”
Scrap size, density, section size, and cleanliness are other critical factors that can determine whether a foundry achieves its maximum melt rate and efficiency.
Neenah Foundry has addressed some of its scrap issues through “single-sourcing”—that is, purchasing scrap from one supplier. This approach allows the firm to build a close, synergistic relationship with the supplier in which both companies “understand each other’s operations and the needs, capabilities, and limitations of those operations,” Headington said. Single-sourcing also “generally leads to a more consistent and reliable supply of product, both in terms of quality and delivery.”
Another important trend, Headington noted, is that foundries are using higher percentages of pig iron in their charges and are exploring DRI and other alternative metallics to mitigate problems related to scrap supply and quality.
Promoting Steel. The steel industry is pursuing several strategies to aggressively promote steel usage and improve the metal’s image, noted Bill Heenan of the Steel Recycling Institute (Pittsburgh).
In the automotive market, steelmakers have formed a consortium to promote an ultralight steel auto body to help steel maintain its dominance in the spaceframe niche and hold back the progress of aluminum, its nearest competitor. In this project, steelmakers have managed to reduce the weight of steel spaceframes for passenger cars, pickup trucks, and sport utility vehicles while making them stronger and less expensive, Heenan said.
Another major steel initiative is to increase the use of steel studs in frames for residential houses. To help steel gain a broader foothold against wood, the industry is providing training for framing contractors and courses at vocational schools to tap the next generation of framers, among other programs, Heenan noted.
And in an effort to change consumers’ perception of steel, the industry has formed the Steel Alliance, which will use a variety of media to promote the message “The New Steel, Feel Its Strength” that emphasizes steel’s ability to provide security and value to life, Heenan said.
Zinc—Off and Running? Though zinc has been a price underachiever in the past few years, world fundamentals indicate that it could be “in the starting gate, ready to take off,” said Patricia Foley of HSBC James Capel (New York City) at the lead and zinc spotlight.
This bullish forecast rests on supply concerns, notably that the historic low level of investment in new mines and smelters, coupled with the huge costs associated with bringing new capacity on-stream, have begun to whittle down aboveground stocks. If inventories drop at current rates, slab zinc “won’t generally be available to meet rising demand” by late 1997 or early 1998, Foley said. Further, LME metal and increased imports from the Eastern Bloc can’t be counted on to fill the anticipated gap between production and consumption.
Foley supported her supply predictions by reviewing both current and planned mine projects, as well as recent closures and cutbacks. In the 1996-1997 period, for instance, less than 100,000 mt of new mine capacity will be added, she said. Beyond 1999, other projects are being considered, but many of these projects will need average zinc prices of 55 to 60 cents a pound to move forward.
On the smelting side, no new refineries have been built since the early 1980s, though three projects are reportedly under consideration, Foley noted. These refineries depend on the long-term availability of concentrates, which, in turn, will depend on healthy zinc prices to attract the necessary capital for new mine development.
Zinc demand, meanwhile, could grow 2.1 to 2.5 percent in the next five years, “with the strongest growth in the rapidly industrializing countries,” Foley said. This demand could push LME average zinc prices to 55 cents a pound this year, 60 cents in 1998, and 63 cents in 1999, with longer-run annual average prices in the 55-to-60-cent range, she ventured. There’s also the potential for short-term price spikes of 70 to 75 cents a pound. And far from being a short sprint, zinc’s expected rise will be “more of a 10K race, with prices maintaining a strong and steady pace,” Foley said.
The only risks, she concluded, would be weaker-than-expected European demand, increased Chinese exports, or sooner-than-expected capacity additions.
Lead Loses Momentum. Despite lofty expectations coming into 1996, lead faltered last year and entered 1997 like a lamb, in large part due to supply imbalances, noted Brian McIver of Nova Pb Inc. (Ville Ste-Catherine, Quebec).
Retracing the development of lead’s stumble, McIver noted that during 1994 Western World refined output increased 1.2 percent and total metal availability—which includes net Eastern Bloc exports plus DLA sales—increased 4 percent. That same year, apparent lead consumption more than kept up, increasing a “whopping” 6.1 percent, he said.
A similar scenario followed in 1995 as consumption again grew faster than total metal availability, and higher lead prices followed.
In 1996, however, total lead availability increased 2.9 percent, but this time consumption trailed at 1.3 percent, McIver said. This lagging demand helps explain why lead failed to live up to the expectations of many over the typically strong “battery season” last year.
Given these fundamentals, it’s no surprise that LME lead prices have “clearly been on a downward slide since September 1996,” recording a 16-month low in February, McIver said. But given lead’s past 10-year average of 28.6 cents a pound, a correction toward that number “shouldn’t have come as a great surprise.” After all, he noted, last year’s LME three-month average was 35.11 cents.
Assessing Nickel’s Potential. Though nickel ended 1996 on a bearish note, it has rebounded this year and faces promising new demand prospects in the future, said Mo Ahmadzadeh of Rudolf Wolff & Co. Inc. (New York City) at the nickel and stainless steel spotlight.
“The LME nickel price has been interesting to watch,” said Ahmadzadeh, explaining that the metal ended last year around $2.95 a pound, which created a wave of bearish sentiment. The market, however, has “rallied smartly so far this year,” he said, noting that LME stocks are down about 67 percent from the high in 1994, resulting in “less cushion against fund buying.”
While analysts foresee only slight growth in nickel consumption through 2000, he said, this expectation is erroneously based on a low supply. “There is more production coming online,” Ahmadzadeh asserted, adding that stainless steel production is increasing and the metal is finding new markets in vehicles and construction. Use of nickel is also rising in other applications such as batteries and superalloys. “More applications mean more demand,” he emphasized. “There is a large scale of potential here.” In light of these demand prospects, nickel could surpass $4 a pound this year and $4.50 in 1998, Ahmadzadeh predicted.
Stainless Heads Toward Balance. Offering an up-close look at the stainless market, Robert Winters of Bear Stearns (New York City) noted that “supply and demand for stainless steel is moving toward closer balance.”
While worldwide production has increased in recent years, with more capacity expected to come on-line in the next two or three years, consumption is also expected to grow at its long-term historical rate of 4 to 6 percent a year.
The Western European market has rebounded 20 to 30 percent in the past six months due to a variety of factors, including an increase in industrial production, especially in Germany, Winters said. The possibility of a unified currency for the region is “worrisome,” however, and capacity increases in the area may not be supported by increased consumption. The result could be that “European producers will look to the export market as an outlet” in second-half 1997, he ventured.
The Far East, meanwhile, has exhibited solid growth and could present the strongest market prospects in the future. In the near term, though, the region’s demand “may not be enough to offset the significant increase in production expected to hit the market this year,” Winters said. Given this increased supply, price recovery there could take another year or so.
In the United States, he asserted, “demand remains strong for stainless as it has all along” and European imports have been scaling back, “enabling U.S. prices to go up,” Winters said. It’s uncertain, however, whether prices will continue along these lines for the remainder of this year, especially if European producers begin to step up their exports. “Current U.S. prices are the highest in the world, and the gap between the U.S. and European market is getting wider with the strength of the dollar,” Winters explained.
Despite a potential rise in imports, “a general stabilization of prices is under way and will tend to go up rather than down,” with U.S. base prices expected to remain flat through 1997 and rise 5 to 7 percent in 1998, Winters said.
Paper on the Level. The scrap paper market in 1997 will most likely be a “levelling off” period, neither reaching the highs of the boom period in 1994-1995 nor suffering the lows touched in 1996, according to Amy Snell of Mill Trade Journal’s Recycling Markets (Northbrook, Ill.).
The market is still slow, she said, noting that OCC- and ONP-consuming mills continue to take downtime and that the market for high grades has seen little action. Pulp subs are moving, though they are being negatively affected by supplies of cheap virgin pulp, Snell pointed out. One positive prospect, she added, is that overseas freight carriers have excess capacity, which means secondary fiber shipments could take advantage of lower rates to the Pacific Rim.
As for the market’s longer-term outlook, overall pulp, paper, and paperboard capacity will grow 1.5 percent a year in the next three years, which represents a slowdown compared with the 3.5-percent capacity growth in 1996, Snell reported. Consumption of secondary fiber, meanwhile, will outstrip capacity growth, expanding 2.9-percent annually in the next three years, she said, asserting that “secondary fiber will become a larger piece of the pie.”
Looking at other paper market trends, there’s a shift toward a more domestic-driven market, which means export demand will be “less of a driver” and that “a slack in overseas demand may mean nothing more than a blip in our markets,” Snell stated.
Another notable trend will be the proliferation of paper minimills as firms strive to improve the quality of their end products, said Robert Carpenter of Solvay Paperboard L.P. (Syracuse, N.Y.). “We will see more and more being built, as smaller companies pool their resources so they can have more control over the finished product.”
Harry Reiter of Pope & Talbot Inc. (Ransom, Pa.) rounded out the paper spotlight by describing how his company mixes mill byproducts with cedar to make lumber for use in window framing and decking. Mill sludge is also finding secondary uses, he said, noting that “sludge was once mixed with soil and composted, but it took a lot of time. Now, by mixing it with low-grade soil, it can be used for cover on state game lands.”
A Call for Continuing Leadership
America must resist the temptation to turn politically inward and instead must assert its leadership to combat world problems such as political instability, international terrorism, religious fanaticism, weapons proliferation, and international drug trafficking, asserted former President George Bush during a general session.
“The end of the Cold War does not carry with it the assurance of peace and stability,” he maintained. “New threats have emerged and old problems still remain.” In his view, “only the United States can lead, and we must continue to do so and not pull back into selfish isolation.”
Instead, he encouraged continued economic investment in Asia, including Vietnam, noting that the continent offers enormous potential for the United States. In particular, the country must maintain its strategic dialogue with China, Bush said, calling the U.S.-China bilateral relationship “the single most important relationship in the world today between any countries as it affects peace.”
Though there are significant cultural differences between the United States and China—human rights, in particular—the Chinese leaders are not “red book-thumping Marxists,” Bush said. “They are pragmatic and have great pride in their history. We must treat them as adults and treat them with respect and stay engaged if they are to change. We cannot be policemen to the world and solve every problem, but we have to lead.”
Two Sides of the Political Coin
James Carville and Mary Matalin—the Democrat-and-Republican husband and wife team—offered insights into the Washington political scene as well as their personal political differences and similarities at a general session.
One similarity, they noted, is their shared passion for politics. “We both believe in our political system and we both believe it’s important to be active in the system,” asserted Matalin. She emphasized, however, that the popular movement toward political civility is “wrongheaded,” adding that “democracy is not a lovefest—it requires vigorous debate” and people challenging others’ ideas.
Picking up on his wife’s call for political involvement, Carville stated that “cynicism is permeating politics too much,” with the result that people don’t answer the call to political involvement. The low voter turnout for last year’s presidential election is an example of the cost of rampant cynicism, he maintained, adding that the involvement of all people in voting and political activity is the “sacred work of a democracy.” To combat this apathy, he implored the audience to abandon cynicism for fair criticism and be willing to “praise half as much as you’re willing to criticize.”
As for the growing sentiment among the media and the public that the Republican party is leaderless and in a state of confusion, Matalin said that the truth is that the party has too many leaders with different agendas. “This results in a cacophonous presentation of the party,” she remarked.
Living a Balanced Life
“Balance is the key to life. Do not deny the need for it,” asserted keynote speaker and best-selling author Paul Pearsall, who discussed how to use ancient Polynesian principles to achieve and maintain balance, or hula, in work, love, and life.
As a first step, he urged recyclers to take stock of their lives and determine if they are exceedingly angry, impatient, aggressive, or irritable “These things will kill you,” he stated. Instead of struggling to have it all and be the best, he recommended following the Hawaiian credo of success: Be less than you can be and enjoy it.
There are five “fitness factors,” he said, that affect personal health: family or genetic influences, diet, exercise, stress, and the amount of fun or pleasure in one’s life. According to Hawaiian beliefs, lokahi—unity expressed harmoniously—is essential to good health. “We believe health is based on patience and, in return, patience enhances health,” said Pearsall.
Hostility and pent-up tensions are key indicators of a person’s life expectancy, he continued, noting that another Hawaiian tenet centers on olu’olu, or agreeableness expressed pleasurably. Still another key to attaining balance and harmony in life is ha’aha’a, or humility expressed modestly, he added.
Pearsall urged recyclers to include more intimacy in their lives and take pride in their business, which he called “the industry that saves the Earth.” Hawaiians believe that the Earth and all things related to it are infused with sacred power, he said. Thus, recyclers should “give protection to that which is precious” in both their personal and professional lives.
—Robert J. Garino, Kent Kiser, Kristina Rundquist, and Eileen Zagone