European Recyclers Hopeful for Market Lift

Si Wakesberg is New York bureau chief for Scrap Processing and Recycling.

European scrap executives--whose metal markets might be described as limping through the second half of the year--are anxiously looking across the Atlantic for any signs that the U.S. recession is coming to an end. This, they hope, could be a premonition that their own economies are headed for recovery since, according to a German recycler, "We are just now at the stage the U.S. scrap industry was at three months ago."

In fact, a central theme expressed at the annual convention of the Bureau International de la Recuperation (BIR) (Brussels, Belgium) held in Monte Carlo in late May was that the European metal economy has staged and until activity picks up in the United States, European trading will remain in low gear. Furthermore, according to a cross section of merchants and scrap executives representing numerous European companies, despite specific national economic problems, the weakening aluminum, copper, zinc, stainless, and steel scrap markets are affecting nearly all European businessmen.

The European aluminum situation seems particularly bleak. Scrap recyclers from several countries report that intra-European trading has been at a greatly reduced volume. "European consumers aren't taking any significant tonnage of aluminum scrap at this time," explains a U.S. exporter, "because they appear to have plenty of their own supplies." Other reasons why the flow of U.S. exports to Europe appear to have stalled include the stronger dollar and lower prices for primary material.

Aluminum is not the only metal to have suffered this fate. Speaking in Monte Carlo at the stainless steel and special alloys committee meeting, Barry Hunter, chairman of that BIR committee and a senior vice president with Keywell Corp. (Port Elizabeth, N.J.), pointed out that while in 1988 approximately 55 percent of all U.S. stainless scrap exported went to the European market, in 1990 only 28 percent of the total volume was destined for Europe. This year's U.S. exports appear to be following the same reduced pattern, he said.

How is the stainless scrap market faring within Europe? Says a British executive: Prices weakened in the second half of 1990 but picked up early this year. Scrap supplies are tight, margins are down, and demand and prices are expected to fall somewhat during the traditionally slower third quarter, he adds.

German sources say that stainless steel has done better there than anyone had anticipated but that they expect prices to have fallen in the summer. Stainless scrap consumption may have reached a plateau, these Germans note, but tightness of supply might continue to keep the market from slumping, as has been the case with other metals. Asian demand, they say, is generally accountable for stainless steel's market stability.

While the German stainless market appears to be persevering, that country's economy, in general, seems to be facing some problems stemming from the absorption of the weak East German economy. And, says one German metal recycler, "It will take time, patience, and lots of money" before this economic integration can be cushioned and the impact softened. Although the process will be "difficult," notes another executive, it should eventually lead to a strengthened German economy.

Scrap executives from the Netherlands seem to be looking forward to that outcome as resolutely as their German counterparts. Because there are no copper refineries or brass miffs in the Netherlands, Dutch scrap dealers ship much of their red metal scrap to Germany, as well as Italy and France. "Actually," explains a Dutch industry member, "our scrap market depends on the German market." The current state of the German market, he adds, has caused the Netherlands to experience "a weaker market situation.”

One of the oblique consequences of what's happened in the recent transfiguration of East Germany and the rest of Eastern Europe is that the Soviet Union, unable to sell off its huge metal output that had been going to its former satellite countries, has been pushing it westward. A case in point is aluminum: Last year the Soviets shipped 363,000 tons of aluminum to the West; this year the figure is estimated to be 1. 1 million tons, with most of this metal expected to end up in London Metal Exchange (LME) warehouses. Some industry observers are wondering whether Soviet nickel may be the next commodity to be unloaded in large tonnages to the West and the LME.

Another effect of the changes in Eastern Europe, Western metal executives point out, is the important role that bartering or “countertrading,” as it is more commonly called, is taking on in the new economy of Eastern Europe. For example, says one industry official, "If you can sell a piece of scrap equipment in Hungary or Czechoslovakia and the buying agency doesn't have the money to pay for it, it might be possible to strike a deal." What could be bartered? Perhaps a percentage of the product recovered by that equipment over a period of time, the European executive says. U.S. merchants, however, are somewhat doubtful. As one points out, "It's difficult to set up a barter for wirebars, for example, because sellers over there can get currency for that item and that's preferable."

Western Europeans also are looking at the restructuring of Eastern Europe as an opportunity to make use of large quantities of scrap. The downside, says an Italian scrap executive, is that "it's doubtful that any of this will take place before early or mid-1992." Other European observers are even more pessimistic. "It could take years before money can be found to pay for this restructuring," says a French industry member.

"Our ferrous scrap volume is down about 50 percent," notes one French scrap processor. "We are operating at the slimmest of margins--sometimes even at losses--just to keep going." Prices for steel scrap have plummeted, he says, and as a result, steel scrap collections are "way down." One consequence of this has been the apparent dwindling of other scrap supplies. "When you can’t get collectors to pick up iron and steel, you also lose a substantial portion of collectible nonferrous scrap," he points out.

Surprisingly, a recent survey by the Organization for Economic Cooperation and Development (OECD) indicates that the French economy will grow by more than 1.5 percent this year, despite a slowdown in the early months of 1991. French scrap executives, however, have been skeptical. "It will take a sharp recovery through the second half to make that prediction come true," says one executive, "and I don't see that happening."

Steel scrap executives in Great Britain are no more optimistic about their economy and scrap situation than the French. According to one veteran British official, in fact, ferrous scrap markets in the United Kingdom have been "as bad, or worse, than they were in 1980." Meanwhile, in a presentation made at the Monte Carlo convention, BIR Ferrous Division President Anthony P. Bird, joint managing director of the Bird Group of Cos. Ltd. (Stratford-upon-Avon, England), said that the first half of 1991 was more difficult than the latter part of 1990, and that "the second half is cause for concern." Furthermore, he said, weakness in the European automotive industry has hurt steel optimism throughout the continent. Despite the slowdown in European steel, however, some countries--such as Spain and Italy--reportedly have managed to import fair-sized tonnages of scrap steel from the United States.

Most metal industry observers anticipate a substantial increase in industrial production within the European Community (EC) once the recession ends--and, along with it, an increase in the generation of production scrap. What will happen to this scrap? One German industry member predicts it will be part of increased exports to Asia expected from the EC once the Common Market takes effect. An Italian scrap representative, on the other hand, points to the opportunities for shipping sizeable amounts of scrap to Kuwait and Iraq for restructuring. Several other European recyclers, however, insist that Europe will need the scrap for its own use, particularly as it begins to rebuild the infrastructures of Eastern European countries.

While some have questioned the actuality and timing of the Common Market, most European scrap recyclers express the belief that it is an indisputable fact and that there will be a unified economic market by Jan. 1, 1993. This--along with other factors--may be what inspired economist Lester Thurlow of the Massachusetts Institute of Technology (Cambridge), to note at a recent conference presentation that "Europeans have at least a chance to make the 1990s the decade of Europe." In the 1980s, he pointed out, the European economy, with an annual growth rate of only 1.5 percent, lagged behind that of the United States, at 2.5 percent, and Japan, which led at 4.0 percent. It may now be time, he said, for the EC to "prosper through trade among its members and with Eastern Europe."

European scrap executives are undoubtedly hoping for the same, but the key word is still "hope." Few seem willing to commit themselves to much more than keeping their fingers crossed, hoping that the U.S. economy creeps out of its recession, and hoping that an uplift in the U.S. economy will give European markets a needed injection for renewed activity by the close of 1991.

If Europe is several months behind the United States in grappling with its recessive economy, it appears years behind the United States in meeting mounting environmental challenges. Europe is now falling under greater pressure to comply with stricter regulations and with new ordinances and laws governing recycling businesses.

Overall, the challenges facing Europeans are similar to those confronting the U.S. scrap industry. The lack of distinction between regulatory definitions of "scrap" and "waste," for example, is at the forefront of European recyclers' concerns.

Another related critical matter, implementation of the Basel Convention on the Control of Transboundary Movement of Hazardous and Other Wastes, is of equal concern to recyclers in the United States and Europe, who fear that without an exemption for scrap, international trade of recyclables could be halted. EC countries, however, have the advantage of being members of a bloc that will likely implement the convention as one, allowing trade to continue among those nations. •

When will the European scrap commodity markets rebound from their current slump? Recyclers on that continent don’t expect it to happen until the same takes place in the United States.