May/June 1989
The changing European scrap market may create challenges or opportunities for U.S. exporters. Several currents overseas--including efforts to “unify” Europe--spark the question: Will we even recognize the EC market a few years from today?
By Si Wakesberg
Si Wakesberg is a New York City-based consultant to the Institute of Scrap Recycling Industries, Washington, D.C.
European scrap metal markets are experiencing a period of rising market values, expanded business volume, and continued pressure for raw materials. In this regard they are paralleling the United Kingdom's--and the rest of Europe's--nonferrous metal markets. Industry executives say production rates for most metals have increased sharply and note that the volume of activity is much higher today in scrap than it has been in previous years.
One of the real phenomena has been the intensification of demand for aluminum scrap among some of the European Community (EC) countries, such as West Germany and Italy. This widespread interest in aluminum scrap has resulted in the establishment of aluminum can recycling programs in the U.K., Italy, Greece, France, and other countries. While by U.S. standards the can recycling rate remains relatively low, there is a feeling among European observers that these rates will be boosted much higher within the next three to five years.
In this climate of active markets, sustained demand for scrap, and higher prices, some thoughtful industry officials see beneath the current market surface a series of changing conditions in the European scrap market that may have implications for the biggest shipper-nation--the United States. Executives in the U.K., West Germany, France, Italy, and other community countries see important market changes coming between now and 1992. In the United States, scrap metal exporters, too, are studying what's happening abroad in order to size up the challenges and opportunities of the market of the future.
A Unified Europe: Threat or Partner?
By 1992, the EC's target date, there will be a so-called unified Europe-a monolithic European Community, acting as a solidified multibillion dollar market. How will that affect scrap shipments from the United States?
In recent months, U.S. metals executives have warned about the challenge of a unified European market. At the American Metal Market Copper Forum, Stuart D. Baker, of the law firm Chadbourne & Parke, New York City, cautioned copper companies to prepare themselves for what may come. "Standardization may have profound effects on U.S. exports," he said, "since harmonization directives may be framed so as to exclude or hinder the reentry of non-European products into that market."
But some European executives indicate that a unified common market will have little effect on the scrap flow from the U.S. According to one West German official, "the United States is a volume exporter of scrap. It ships large quantities of material which are simply not available in the Western European market ... and I don't think this situation will change very much."
Other industry members believe that scrap will continue to be needed, and that the amounts required can only be procured from U.S. shippers.
Of course, there's been some talk of higher tariffs on incoming material or other kinds of restrictions--but most observers do not believe any substantive effort will be made to hamper the inflow of needed scrap. A unified
European market may, however, see the disappearance of regional variations and may result in changes in the directional flow of material.
EC Export Controls Tightening
While European observers see little change in restrictions on incoming scrap, there are definite restrictions on EC exports to countries outside the common market. Though these restrictions are hardly new, they have become more stringent in recent years-Will they become even more severe in a unified European setting? The controls encompass licensing procedures, export monitoring, and export quotas. They include restrictions on aluminum scrap, copper and copper-based scrap, lead scrap, and, most recently, zinc scrap.
For aluminum scrap and lead scrap there are no quantitative restrictions, but export licenses are required. The EC has indicated that it will monitor the movement of these exports closely. Copper scrap is under fixed quotas, causing much grumbling among European copper scrap shippers. This year, zinc scrap was added to the list of scrap items that require licenses to be shipped to non-EC countries.
The extension and broadening of the control system has caused a reaction among those European companies that are members of the Bureau International de la Recuperation (BIR). In a statement issued early this year, BIR urged the EC "to abandon controls on the export to third-world countries of copper and copper alloy scrap, in view of the potential threat of significant retaliatory action by the U.S. and other countries which pursue a policy of free trade in secondary metals." BIR called for "removal of these outdated controls, which have long outlived their original purpose."
The warning by BIR concerned a petition filed by the U.S. Copper and Brass Fabricators' Council that alleged that EC countries have reduced their costs for raw material "through unjustified restraints" and have used this cost advantage to export semimanufactured products to the U.S. At the February Copper Roundtable in New York City, sponsored by the Institute of Scrap Recycling Industries (ISRI), several speakers alluded to this petition.
In seeking to clarify the petition by the Copper and Brass Fabricators' Council, Herschel Cutler, ReMA executive director, noted in a statement made in response to a request from the Office of the U.S. Trade Representative (USTR) that there is no shortage of copper scrap in world commerce, nor is any expected. Cutler said that "in any findings or determination made in this proceeding, USTR should state clearly that there neither is nor could be a 'shortage' of copper scrap." Cutler said that EC quotas "clearly are not predicated on any supposed 'shortage' of copper scrap."
Where U.S. Scrap Is Going
The bulging demand for aluminum scrap in 1988 shows up clearly in greater U.S. exports to France, Germany, Belgium, Italy, and the Netherlands. In the first 11 months of 1988 (latest ReMA figures available at press time), France imported six times as much aluminum scrap (13,295 short tons) as in the previous year, and Italy took twice the tonnage (6,588 short tons) as it did in 1987. The larger shipments reflected the rising European demand for aluminum scrap-a demand that has persisted into 1989. It must be remembered, however, that the bulk of U.S. aluminum scrap continues to move to Japan, Taiwan, and Korea. Early 1989 reports indicate a rather tight aluminum scrap supply situation within the European Community.
Germany was a principal importer of U.S. copper-based scrap in 1988, taking about 29,000 short tons in the first 11 months of the year, a little more than double the amount it absorbed in 1987. While Belgium and the U.K. purchased somewhat higher tonnages than in the year before, Spain and Italy imported less. The 11-month figure indicates that total U.S. exports of copper and copper-based scrap in 1988 will be somewhat greater than in 1987.
An analysis of zinc scrap exports in the first 11 months reveals very small European intake in 1988, with Belgium's 2,527 short tons nearly half what it was in 1987. Actually, nearly all U.S. zinc scrap moved to Taiwan. Spain, Italy, Germany, and the U.K. upped their purchases of lead scrap in 1988, but the major portion still went to Brazil, Canada, Mexico, and Taiwan.
Spain was the big buyer of stainless steel scrap in Europe, taking 58,114 short tons (27 percent of total U.S. shipments) in the first 11 months of last year. Germany absorbed six times the quantity it purchased in the previous year- 13,036 short tons. Higher intake was racked up by Italy, Sweden, and the U.K., while Belgian and Netherland imports declined. European stainless scrap buying rose dramatically in 1988, despite heavy purchasing by Japanese and Korean sources. U.S. stainless scrap exports in the first 11 months of 1988 came to 217,138 short tons and are projected to surpass 240,000 short tons for the year, against 169,000 short tons exported in 1987.
There has been some indication in early 1989 that small tonnages of European scrap are beginning to be shipped to the Far East. The weaker dollar made U.S. exports more competitive for a while, but a recent strengthening of the dollar raised questions about future European competition.
Other Impacts
Currency is a vital factor in European metals and scrap markets. A recent firming of the sterling rate in the U.K. may have slowed efforts to export various grades of scrap. As the German mark goes up or down, industry members say, it has a decided impact on the flow of metals and scrap into and out of the country. Similarly, the dollar's weakness has helped boost U.S. exports.
Freight rates, too, have a significant effect on the export market. Ocean freight rates have been going up for U.S. shippers, and exporters have felt the monetary sting when moving materials abroad. Recently, however, there appeared to be a steadying of the freight rate situation. Few expect any immediate drop in the rates but there's fervent hope they will stay at least at an even keel for the next few months.
Mergers and takeovers are as much a fact of business life in Europe as they are in the U.S. Small scrap firms have been taken over or merged into conglomerates, or simply closed up shop during the critical period of the mid-'80s, when metal markets collapsed and prices went abysmally low. European sources say the result is a more monolithic industry, with larger scrap companies and fewer small firms. Will this lead to less competitiveness in the European market? Will it have an effect on the way scrap flows throughout the European Community? Will it tend to consolidate activities? Industry members are uncertain about the outcome.
Technology is bringing its own changes to the look of the European metals and scrap industry by playing a major role in the production and distribution of raw material.
And there's no overlooking the physical and psychological impact of the London Metal Exchange (LME). Though scrap is not a traded commodity, the LME's flashing neon lights for copper, zinc, nickel, and aluminum in 1988 and 1989 have illuminated the price pathways for their scrap counterparts. There's no doubt that the LME will continue to play a principal role in the fast-changing European metals and scrap markets.
Merchants both in the U.S. and overseas appear to agree: the European metal markets have been active--even volatile--and scrap has participated in the rising volume and higher prices. The European market of the 1990s will be not only different but more challenging for all involved in international trade. •
The changing European scrap market may create challenges or opportunities for U.S. exporters. Several currents overseas--including efforts to “unify” Europe--spark the question: Will we even recognize the EC market a few years from today?