Generation—ISRI 2005 Convention Highlights

May/June 2005
  

They came, they saw, they had a blast at this year’s ReMA convention in New Orleans. Recapture the fun in this highlight reel.

New Orleans is renowned for its parties and its motto to laissez les bon temps roulez (let the good times roll). Well, the good times were certainly rolling—and there was quite a party going on—when ReMA held its convention and exposition April 12-16 in the Big Easy.

This year, ISRI’s big annual event was indeed big at 3,268 attendees, making this the association’s second-largest convention. The 2005 exposition was, in fact, the biggest in terms of physical space, wiht 151 exhibitors filling the gargantuan exhibition hall in the Ernest N. Morial Convention Center.

The convention’s offerings—including the exposition, workshops, social functions, general sessions, commodity spotlights, and more—complemented the many enticements of New Orleans to make one memorable experience. To make sure you don’t forget—or in case you missed something while having beignets and café au lait at Café du Monde—here’s an editorial and visual summary of ReMA 2005.

Marking the Markets Analyzing Aluminum. Though primary aluminum is tight, there’s plenty of scrap around, said Blair Stewart of JW Aluminum Co. (Charleston, S.C.) at the aluminum spotlight. Moreover, scrap spreads have opened up into what Stewart, a scrap purchaser, called an “opportunity” range that’s “significantly wider than what we’d consider normal spreads.”

Noting that LME inventories have been declining steadily all year, Stewart also described the LME as “toppy,” meaning it had probably reached its peak. Looking ahead, he predicted an aluminum market deficit for 2005 larger than in 2004, with the deficit shrinking but continuing in 2006 and the market finding balance in 2007.

James King, a metals industry consultant from Corbridge, England, offered an opposite view. With production of primary aluminum rising “sharply,” especially in China, he forecast a tight market for the first half of 2005. The second half could see rising supplies accompanied by slower growth in consumption, ultimately yielding a “major surplus” by 2007. The LME three-month average will reach 81.6 cents a pound this year, King said, then decline to 72.7 cents in 2006 and a “more normal” 64.3 cents in 2007.

Turning to secondary aluminum, the scrap-intensive castings industry is an often-overlooked sector but is actually the fastest growing part of the aluminum business, King said. Castings rose from 3.9 million mt in 1984 to 10.6 million mt in 2004 and should reach 19.7 million mt by 2024, he reported. Castings’ share of semifinished aluminum production has likewise risen from just under 18 percent in 1984 to more than 24 percent today.

Overall, scrap is becoming increasingly important to aluminum production, King said. Aluminum scrap consumption worldwide increased from just over 6 million mt in 1984 to nearly 15 million mt in 2004 and should rise further to 30 million mt by 2024, he noted. Secondary aluminum’s share of aluminum industry feedstock rose from 22.8 percent in 1984 to 30 percent last year, he added. India’s and China’s reliance on primary sources, however, will likely hold secondary aluminum’s share to only a modest increase between now and 2024, perhaps up to 32.8 percent, King predicted.

Subodh Das of Secat Inc. (Lexington, Ky.) discussed the new Center for a Sustainable Aluminum Industry, which his firm is helping establish under an Alfred P. Sloan Foundation grant. Located at the University of Kentucky in Lexington, the center has $800 million for research into issues such as the decline in UBC recycling, the increasing recovery of scrap aluminum from automotive sources, alloy differences between automotive and UBC aluminum scrap, and the feasibility of commingling the two streams. 

While the actual UBC recovery rate is 50 percent or less, Das noted, the public continues to believe that about 70 percent of UBCs are being recycled. “We need to understand consumer behavior or there’s no chance of enhancing the recycling rate,” he said, adding that an enhanced aluminum recycling rate is critical because U.S. primary aluminum smelting “has declined to the point where it’s almost extinct.” The 35 domestic smelters in operation in 1980 declined to 14 by 2003 and could fall to as few as three by 2020, Das stated.

Softer Times for Copper? The copper market has been “a raging bull market the last four years,” said Leanne Baker of Investor Resources Ltd. (Tiburon, Calif.) at the copper spotlight. “If anyone, four or five years ago, predicted $1.40 copper, they would have been thought to be crazy.”

Likewise, 2005 started with a “bang,” as the supply deficit widened to more than 700,000 mt and exchange inventories collapsed near all-time lows, she noted. In addition, China’s official economic policy has reverted to growth after some slowing in 2004.

More recently, though, the market is showing early signs of a top, with mines restarting and copper supplies becoming more plentiful, Baker said. Also, merchant and producer premiums are down from their highs, and inventory declines appear near an end.

Another development has been “demand slowdowns in Europe and the U.S. that will offset continued growth from China.” As a result, Baker said, the copper market will return to a more balanced situation, with only a small 50,000-mt deficit by the end of 2005—a significant correction compared with the 702,000-mt deficit in 2004. 

 For the coming years, Baker offered three potential scenarios:

1. A commodity “super cycle” defined by years of above-trend pricing;
2. A conventional cyclic peak in 2005, with prices settling below $1 a pound at the cycle’s lows in 2007-2008; or
3. The end of the global credit bubble, leading to a prolonged period of depressed demand and pricing.

Since a so-called super cycle can only be verified in retrospect, 2005 should be viewed in terms of a conventional cycle, Baker suggested. Her “best guess” is a peak in pricing in the first half of 2005 and a move toward balance or surplus by year’s end, with a 2005 price average of $1.40 easing to $1.20 in 2006 and $1 in 2007.

A ‘Collision Course’ for Copper Recyclers. Though many scrap recyclers made more money in 2004 than they ever expected, that year may have marked “the beginning of a long, troublesome relationship between the producers of scrap and our domestic consumers,” said Robert Stein of Alter Trading Corp. (Grand Rapids, Mich.).

There are three issues contributing to this “collision course,” Stein said. “It has to do with the economics in which both scrap processors and their consumers exist; with the attempts at controlling how and where we sell our scrap; and with the continued industrialization of China.”

As he explained, “every impediment on the ease of delivering copper or brass scrap to an American consumer costs somebody something to implement, and that something isn’t getting any cheaper. Regardless of who bears the cost, if our scrap can’t be economically prepared, shipped, and used in the U.S. for whatever reason, it’s going to go elsewhere.”

Because of China’s ongoing industrialization, its market penetration into the U.S. scrap markets has been deep and of historical proportions, Stein observed.

“It isn’t just a market for the labor-intensive scrap that we typically associate with a developing nation,” he said, “but for those grades of scrap consumed by high-quality producers of copper and brass products manufactured in the industrialized nations.”

Stein also had strong words regarding last year’s efforts by domestic copper and brass producers to limit exports of copper and brass scrap. 

“Governments have no business in commercial interference in the legitimate flow of scrap metal, except when national security stands to be compromised,” he asserted, “nor should they be used by special interest groups who bear unrealistic and unfounded cases of damage resulting from our right to ship our scrap where it makes sense.” The better course, he said, is to let “the markets do their work.”

A Call for Better Specs. Consumers and suppliers of copper scrap worldwide need to work with ReMA to develop a “truly universally acceptable specification to clearly identify what constitutes good delivery,” urged Stanford Shanker of Warrenton Copper L.L.C. (Warrenton, Mo.). “Ambiguous language such as ‘excessively’ or ‘excessive’ must be avoided, and it is my belief that clearly identifying acceptable definitions of scrap will bring greater dollars to the suppliers and lower operating cost to consumers.”

As a consumer, Shanker noted that “the cost of refining is directly correlated to the type and amounts of deleterious materials that are contained within a shipment of scrap. All scrapis created equally, however all grading and packaging are not.”

In closing, he expressed his belief that “premiums would be paid in the marketplace for material that is exactly as described in a well-written specification, easily identifiable by all shippers and consumers, regardless of the metal’s origin or final consummation point.”

Steel Looks to Asia. Steel price gains were “unprecedented” in 2004 thanks largely to China—the “gorilla” in the market, said James May of May Commodity Associates (Toronto) at the ferrous spotlight. When it comes to steel prices, he noted, it’s important to look at the big picture and acknowledge that “prices in North America are not set in North America because steel is a global business.” What happens in Asia, which accounts for 50 percent of global steel demand, is what matters, not what happens in the United States, which accounts for only about 10 percent of steel demand, he said.

China, especially, is “the driver in setting steel prices, not the U.S.,” agreed Keith Busse of Steel Dynamics Inc. (Fort Wayne, Ind.). In the past year, China “has put a lot of pressure on commodity markets, resulting in tremendous cost increases that are passed on to our consumers.”

While 2004 was a “really great year,” Busse said he expects 2005 to be only a “fairly good year.” May noted several trends affecting the steel market this year, including the negative impact of net China exports, destocking in the United States and Europe, and an economic slowdown in most markets. 

“Mature markets, with the exception of Japan, are now in a position of oversupply,” he observed. Unless there’s a significant reduction in supply, “the price fall could be fast, with international hot-rolled coil declining to $500 mt by the end of 2005 from levels of around $650 mt now,” May stated. For his part, Busse sees the market “reaching its bottom, but I don’t think there’s a chance of $450-a-ton steel.”

Though Asia is the center of the steel universe these days, North American scrap traders and manufacturers of recycling equipment should initiate or increase their business with companies in the European Union (EU), suggested Alfred Nijkerk of Recycling International and author of the Handbook of Recycling Techniques. In particular, he cited three business opportunities in the EU for North American companies, including the export/import of scrap, the export/import of recycling equipment, and investment in the EU.

According to Nijkerk, less than 5 percent of ReMA and CARI members conduct regular business with EU countries. As he remarked, “It isn’t easy for Americans to do business with 25 countries which speak 21 different languages and which all have individual legal and environmental regulations.” That said, he pointed out that “the majority of internationally focused scrap traders in the established 15 EU states speak the English language.”

On the positive side, Nijkerk noted, the 10 countries that joined the EU in 2004 are expected to switch to the euro within the next two to three years, while the three “euro dissidents”—the United Kingdom, Denmark, and Sweden—could also switch to the euro in the “foreseeable future.” 

Stainless Continues to Climb. Stainless steel production has grown an average of 6 percent a year since 1950 to reach 24.4 million mt in 2004. This growth will continue, with projections calling for 4-percent growth annually through 2010 to 31 million mt, reported Remco Devilee of SMR GmbH (Reutte, Austria) at the nickel/stainless spotlight.

By country, Japan is the largest stainless producer while the United States is second, though other countries—such as China and South Korea—have stronger growth rates in their stainless production, he noted. Notably, there are five leading stainless producers that each have more than 2 million mt of production annually. These firms—ThyssenKrupp Stainless, Acerinox, POSCO, Outokumpu, and Arcelor—have a combined market share of about 46 percent.

Demand for stainless steel and tight supplies of nickel have kept nickel prices high, Devilee pointed out. Despite recent shipments of Russian nickel into LME warehouses, nickel inventories remain “very low.” Announced stainless steel production cuts in Europe and mounting problems in Asia due to a depressed cold-rolled coil market in China could temporarily ease the tightness in nickel, he said. Also, the growing use of lower nickel-containing 400 and 200 Series stainless, the increasing capacity of Chinese nickel producers, and new nickel supplies in the 2007-2010 period could take some pressure off nickel supplies. 

Going forward, nickel’s price is expected to decline to $5.70 a pound in 2006, with additional supplies in 2007-2008 reducing the price further to about $4.50, which could become “the long-term price level,” Devilee said.

In the scrap market, 2004 saw a 10-percent increase in the availability of stainless steel scrap. This year, scrap will be less available, partly because scrap suppliers have reduced their inventories, Devilee stated. Though C.I.S. suppliers have increased their stainless scrap exports, these flows could be reduced or cut off if some C.I.S. countries—such as Ukraine—ban scrap exports to promote their domestic stainless producers.

The worldwide share of scrap in stainless steel, meanwhile, will decline from almost 35 percent in 2004 to 32 percent in 2010, though regional differences will be high, Devilee said. For instance, scrap’s share is expected to remain about the same in North America and Europe at 56 percent and 30 percent, respectively. In China, scrap’s share is forecast to increase from 14 to 17 percent, while in India it’s projected to decrease from 24 to 17 percent. Overall, consumption of stainless scrap is set to grow about 3 percent a year through 2010, Devilee said.

New Life for Lead. From 1998 through most of 2003—a period of 23 consecutive quarters—the LME average lead price didn’t exceed 25 cents a pound. That started to change in the fourth quarter of 2003 when lead posted an average price of almost 29 cents—and it hasn’t looked back.

Dick Amistadi of Amistadi Associates L.L.C. (Chapel Hill, N.C.) examined lead’s long-awaited recovery at the lead/zinc spotlight. Until 2003, he noted, lead was burdened by a supply surplus, which led to growing inventories and production shutdowns. Western World primary lead production, for instance, declined more than 500,000 mt since 2000 from 2.3 million mt to 1.8 million mt. Likewise, global primary lead production crept down from about 3.5 million mt in 2000 to 3.4 million mt in 2004. 

As lead production was slipping, global lead consumption was rising. China, in particular, increased its lead demand for automotive batteries as well as lead-containing screens in televisions and computers, Amistadi said. By the numbers, China’s lead consumption has been growing almost 15 percent a year since 1996, with its demand projected to exceed 1.7 million mt by 2006.

In 2003, the strong demand for lead helped shift the market from surplus to a “modest” deficit of about 70,000 mt, he noted. This deficit swelled in 2004 to an estimated 190,000 mt as world lead metal production of 6.8 million mt fell short of the roughly 7 million mt of demand.

Beginning in mid-2004, lead also benefited from increased investment by commodity funds, Amistadi observed.

 As lead demand increased, LME lead inventories declined steadily from around 180,000 mt in January 2003 to about 40,000 mt in December 2004. 

Driven by these favorable fundamentals, lead prices also increased “significantly,” posting an average of almost 39 cents a pound for 2004.

Going forward, lead appears to be in a strong position. There are few new lead mine projects in the pipeline, and even the new projects that exist would not erase the current deficit, Amistadi said. Also, lead demand is expected to continue growing in 2005, bolstered especially by China and India.

Statistically, world lead metal production will reportedly be just shy of 7 million mt this year, up 200,000 mt—or 3 percent—from 2004. World lead consumption, meanwhile, could exceed 7.1 million mt, yielding a deficit approaching 150,000 mt. Two question marks on the horizon are whether the dollar will strengthen and whether there will be a tapering off of fund investment. If either or both of those factors come to bear, lead’s fate could be less rosy, Amistadi noted.

Zinc Rides the China Wave. Global zinc demand reached an estimated 10.3 million mt in 2004, growing 5.9 percent over 2003. Going forward, world zinc demand is expected to rise slower—3.7 percent—this year to 10.7 million mt, followed by growth of 4.2 percent growth in 2006 to 11.1 million mt, said Bill Kalogerakis of Noranda Inc. (Toronto).

For zinc, Asia in general—and China in particular—holds the key to future growth in demand. That trend is readily apparent by the numbers:

• In 2000, global zinc demand totaled 9 million mt, with Western Asia accounting for 2.24 million mt (25 percent) and China accounting for 1.35 million mt (15 percent). 
• By 2009, zinc demand is projected to reach 12.3 million mt, with Western Asia’s share totaling 2.95 million mt (24 percent) and China consuming 3.2 million mt (26 percent). China’s growing craving for zinc is evident in the fact that in 2004 it became a net importer of zinc metal for the first time, importing some 500,000 mt.

As zinc demand has grown, zinc production has not kept up. While there’s more than enough smelting capacity, there’s a shortage of concentrate—and the problem is expected to get worse. According to Kalogerakis, supplies of zinc concentrate will fall short of consumption by more than 600,000 mt from 2005 to 2007.

This supply shortfall has been—and will continue to be—filled by stocks, thus working down exchange inventories. LME zinc stocks, in fact, have been declining since January 2004, settling around 550,000 mt as of mid-April, he noted.

While zinc prices haven’t performed as dramatically as prices for copper, nickel, or lead, its LME average was just over 48 cents a pound in 2004, 26 percent better than its 2003 average. Price projections for zinc in 2005 range from a low of 51 cents to a high of approximately 66 cents, with an average of forecasts from 11 analysis companies calling for 59-cent zinc for the year.

Enhancing Electronics Recycling. The electronics spotlight featured Thea McManus of U.S. EPA’s municipal and industrial solid waste division, who highlighted the agency’s “dramatic policy shift” from safe waste disposal to the realization that there’s “great value in shrinking the waste stream so it doesn’t need to be disposed of at all.” In other words, she stressed, “we’ve learned the importance of managing material streams rather than waste streams.”

Materials management means designing and manufacturing new products to be easily recycled or reused, McManus noted. Moreover, “materials recycling gives a whole new meaning to the term ‘useful life.’ An individual cell phone may have a useful life of only a few years—but the materials within it may have a useful life that extends indefinitely,” she said.

She highlighted several EPA projects aimed at materials management for used electronics, including:

• EPEAT, the Electronic Product Environmental Assessment Tool, which is “a procurement tool designed to help institutional purchasers in the public and private sectors evaluate, compare, and select desktop computers, laptops, and monitors based on their environmental attributes”;
• The Federal Electronics Challenge, in which at least 80 percent of the federal government—representing roughly $60 billion in information technology budgets—has already agreed to follow the EPEAT program; and
• EPA’s Energy Star program, which has turned its attention to external power adapters for electronics. If the roughly 1.5 billion adapters that power or recharge cell phones, answering machines, camcorders, and other electronic equipment can be made to meet the Energy Star efficiency guidelines, the resulting savings could exceed 5 billion kWh of energy a year—reducing greenhouse gases by some 4 million tons, or the equivalent of taking about 800,000 cars off the road, McManus noted.

She also discussed a March 2005 stakeholder meeting on electronics recycling that attracted about 200 representatives from industry, government, and nonprofit organizations. The meeting explored various ways to advance electronics recycling such as a centralized database to share information on e-recycling, a certification program for e-recyclers, a national clearinghouse to determine the financial responsibility of electronics manufacturers, and a toolkit for states to develop consistent e-recycling legislation from state to state. The meeting also discussed the need to study the impact of prison labor on e-recycling, especially how it might affect smaller firms and environmental justice issues, McManus said.

Talking About Trade 

India—The Next China? Though all eyes have been on China in recent years, India is another star rising in the East, noted Andy Goenka of Steelbro International Co. Inc. (Oyster Bay Cove, N.Y.) and Vikram Kochar of Universal Metals Inc. (New York City) at the workshop on India.

In general, India’s economy has been shifting from an agricultural focus to a service foundation. Currently, the service sector accounts for about 60 percent of India’s GDP, with industry and agriculture each representing about 20 percent, Goenka reported.

Currently, India has

• the fourth-largest economy in the world, with GDP of $3 trillion. That’s about 28 percent of U.S. GDP of $11 trillion and about 43 percent of China’s GDP of $7 trillion, noted Kochar;
• one of the fastest-growing economies, expanding 8.2 percent in 2003-2004 and an average of almost 6 percent over the past 10 years, Goenka said. In addition, he stated, “India is the only economy in the world expected to maintain a growth rate of over 5 percent continuously for the next five decades”; and
• the sixth-largest foreign exchange reserves at $142 billion.

Equally notable, India is the third most-preferred destination for foreign direct investment in the world, Goenka said. It maintains inflation around 4 to 5 percent, which is “most suitable for a healthy economy,” he added. Finally, India’s inter-bank interest rates have declined from about 12 percent in 2000 to 5 percent, a rate that’s conducive to rapid economic growth.

Importantly, India has built its economic strength on different foundations than China. For starters, India is a democracy while China is a communist state. In general, democracies yield slower economic growth than communist countries, especially in a heavily bureaucratic country like India. As Kochar noted, “strong opinions of many opposing groups have prevented decision-making that could have moved progress forward.”

Noting other economic differences, India’s economy is built on private, Indian-owned enterprises while China relies heavily on state-owned businesses and foreign direct investment. China, for instance, received $60 billion in foreign direct investment in 2004 compared with $5 billion for India, Kochar reported. Plus, India’s economy is backed by a strong banking sector while China’s banking sector is overburdened by a huge number of nonperforming loans, Goenka said.

In the future, India faces both advantages and challenges in the global economy. In terms of demographics, India will have one of the youngest populations in the world by 2018, which gives it “a large base of workers freshly trained in the use of the latest technologies,” Goenka noted. In contrast, China’s population will be aging, with a lower proportion of workers in the productive 18-to-40 age group. India’s workforce will also reportedly beat China’s in the number of individuals who are skilled and/or highly educated.

Regarding productivity, India offers 21 percent ROE on capital employed compared with 16 percent in China and 7 percent in the United States, which will encourage large capital inflows to India, said Goenka.

Another positive for India is that 30 to 40 million people are joining its middle class every year. That trend is shifting the country’s consumption pattern toward leisure and luxury goods and away from basic necessities.

Last but not least, English is the preferred business language in India, which gives it an edge in conducting business with the world, stated Goenka.

India also faces serious challenges that could hinder its economic growth and prevent it from being “the next China.” 

For example, it must

• bring millions of people above the poverty line. India is projected to cut its poverty level in half to about 13 percent of its population by 2020, said Goenka;
• generate millions of new jobs every year. Currently, China has a much larger middle class, with 70 percent of its population earning between $2,000 and $7,500 a year compared with only 20 percent in India, Kochar said;
• increase literacy, especially among women, to yield “good human capital,” Kochar said, noting that only 45 percent of Indian women are literate compared with 87 percent of Chinese women. On the plus side, some projections suggest that India could increase its literacy rate to 96 percent by 2020, Goenka said;
• expand its international trade, which works against India’s inclination to be self-reliant. While its two-way trade increased 16 percent in 2004, India still accounts for less than 1 percent of global trade for both imports and exports, Kochar noted. In contrast, China’s two-way trade increased 36 percent in 2004, giving it a 6 percent share of world imports and exports. India will improve in this area, Goenka said, asserting that its international trade is expected to grow 800 percent by 2020;
• make massive investments in infrastructure such as roads, telecommunications, and power generation. “The only way India will ever compete with China is to grow its infrastructure,” Kochar maintained; and
• develop the areas around its urban centers and implement new technologies in more parts of the country.

As Goenka summed up, “India today stands poised for great success, and the momentum is building. While China has already fired all of its engines of economic growth, India is still revving them.”

Going forward, he said, the two countries will complement each other, with China serving as the world’s factory and India serving as its office. “With their respective strengths,” said Goenka, “the two countries will present an unbeatable combination.”

Answering AQSIQ Questions. The workshop on China and the AQSIQ featured a presentation by Baolong Qian, president of CCIC North America Inc. (West Covina, Calif.), China’s preshipment inspection firm, who discussed various quality problems China has found with its imported scrap and also provided answers to some frequently asked questions about AQSIQ requirements.

Qian explained, for instance, that companies that were rejected the first time they applied to ship scrap to China as an Overseas Supplier Enterprise (OSE) can indeed reapply to AQSIQ—but only six months after the date stamped on their rejection notice. Given that AQSIQ issued its first rejections in October 2004, the time for reapplication is likely drawing close for some scrap shippers, noted Scott Horne, ISRI’s general counsel and vice president of government relations.

Qian advised potential shippers of scrap to watch AQSIQ’s Web site (www.aqsiq.gov.cn) for information on when new OSE registration applications will be accepted. (Please note: That site is in Chinese. For AQSIQ information, including English translations of certain documents, ReMA members can also visit www.isri.org.)

Qian highlighted both the volume of U.S. scrap shipped to China and the size of the inspection job, noting that in 2000 CCIC North America inspected roughly 150,000 containers of scrap (with recovered fiber accounting for about 100,000 of those containers). By 2004, the number of inspected containers rose to 360,000 (with recovered fiber accounting for almost 300,000).

Some notable problems discovered in scrap shipments included hazardous material ranging from sealed containers to bullets; environmental problems ranging from mildew to toilet waste contamination; and cases of commercial fraud that include loading better-grade material near the door of a container “to hide the garbage inside the container,” Qian said. Though some of these problems have been addressed recently, others continue to occur, he noted.

One problem that ReMA and AQSIQ have worked together to resolve involved confusion over licenses for “mixed metal scrap” vs. “nonferrous scrap,” said Scott Horne. In some cases, difficulty in translating exactly what material a recycler wished to export resulted in assigning nonferrous licenses to shippers who intended to send items such as electric motors to China—items that fall under that country’s definition of “mixed metal scrap.”

Chinese officials quickly discovered this problem, Horne and Qian noted, and they have asked China’s Commodity Inspection and Quarantine (CIQ) Bureau to “adopt flexible temporary measures” that could allow the material to be cleared for import. Still, shippers should “apply with AQSIQ immediately for a change in their registration,” Qian said.

Getting Down to Business

Protecting Against Fraud and Embezzlement. Imagine a scam in which a trusted employee steals roughly $300 a week by transposing numbers on the weekly payroll tax checks. How long do you think this could go on before she got caught? How about 25 years, and even then it was only because she pulled one final, more easily detected scam, explained author and CPA Edward McMillan in the workshop on managing fraud and embezzlement. 

The above case involved a bookkeeper at a firm with only a handful of employees and was based on the bookkeeper’s awareness that the boss—who had to sign all checks—never examined the tax deposits for accuracy, McMillan said. In the end, she stole about $400,000 this way—and during her trial, it was her boss who got grilled by attorneys over the fact that he had signed the tax documents, which implied he was attesting to the accuracy of the incorrect numbers she submitted.

In another example, McMillan detailed a check-switching scam in which a company’s accountant used all the tricks in the book—from a partner in crime at the U.S. Postal Service to fake markings on the back of bogus checks and forged signatures—to steal around half a million dollars. That case was discovered only because the employer took McMillan’s advice from a seminar and switched the mailing address for bank statements from the company office (where the accountant saw them first) to her own address.

McMillan and moderator Bruce Blue of Freedom Metals Inc. (Louisville, Ky.) also discussed other scams that can hit small businesses such as recyclers, including fake employees who draw real paychecks (be suspicious when checks are cashed anywhere other than an actual bank, McMillan said), bogus vendors who get paid for fake invoices, and employees who steal scrap from their own firm to sell to another recycler. 

The scrap-theft scam, attempted at Freedom Metals, involved a company driver who came to the plant in the middle of the night and used a key to turn off the plant’s alarm system. Then he’d steal 5,000 to 6,000 pounds of copper at a time, Blue said. Because the driver had the correct key to deactivate the alarm, the security company never alerted company officials about the intrusion.

As a result, the security firm now calls whenever anyone enters the property after working hours and deactivates the alarm, Blue said. Freedom Metals has also installed $15,000 worth of cameras to monitor all entrances, exits, and scales, 24 hours a day.

Profits and Payrolls. Albert Bates of The Profit Planning Group (Boulder, Colo.) had a blunt message for attendees in the session on improving the bottom line: “I don’t care what industry you’re in, as long as you’re buying things and selling things you should produce somewhere around a 20 percent pre-tax return on total investment.” If not, he stated, your company shouldn’t be in business. The good news, Bates maintained, is that most firms can get to that 20-percent level within five years. 

One way to improve the bottom line, he suggested, is to reduce the personnel productivity ratio (PPR), which is the percent of each gross margin dollar that must be devoted to payroll and benefits expenses. Most businesses—scrap recycling included—probably have a PPR of 50 to 60 percent, Bates said, which is at least 4 to 5 percent too high. He urged companies to find a way to reduce their PPR by 1 percent a year.

Stressing the relationship of payroll to sales, Bates then demonstrated how such a 1 percent PPR reduction can be achieved during two out of three growth scenarios—high growth and moderate growth—while increasing the actual amount spent on payroll and benefits. 

It’s only when the company experiences no growth that downsizing might be the way to reduce the PPR, he noted.

Bates also recommended that scrap processors launch an industrywide benchmarking study that would enable recyclers to see how they’re performing against similar firms regarding sales volume, payroll expenses, productivity, and other key measures.

Litigate or Arbitrate? Business disputes can be solved in many ways, from simple negotiations between the affected parties to mediation (where a third party helps find a resolution), arbitration (where a presumably neutral third party issues a generally final and binding decision), and litigation, noted Mark Wright, the New Orleans-based vice president of the American Arbitration Association (New York City).

Though he personally favors the mediation approach, Wright detailed the differences between arbitration and litigation at a workshop on those topics. The factors favoring litigation are its initially lower costs (you can file suit for as little $150 in most instances, he said); the fact that many people are familiar with the court process; and the general perception that judges can be trusted to handle such cases fairly and impartially.

The arguments against litigation include the fact that the costs of going to court can eventually exceed the costs of arbitration, plus the lengthy delays often associated with civil trials, Wright explained, noting that many cases take nearly two years to reach a judge.

On the other hand, arbitration cases can often be resolved in four to six months. Plus, the arbitrator or arbitration panel deciding the issue usually includes people with experience in the business issues being debated, unlike judges who must often be made familiar with the specifics of the industries in question, Wright observed.

Arbitration’s faster timetable does require more money upfront, he added. Moreover, arbitrators tend to have a reputation—often undeserved, Wright said—of trying to split the differences too often in a dispute rather than determining who is right and who is wrong.

Before choosing arbitration, Wright said, be sure to consider issues such as where the proceedings will be held (to control travel expenses); how many arbitrators to use and how to select them; what the form and scope of the final award should be and whether the arbitrator(s) should have to explain the decision; and whether the costs of the arbitration should be split evenly or assigned to the losing party.

Achieving Sales and Marketing Success. Though sales and marketing are closely related, they are different business practices, noted Judy Ferraro of Judy Ferraro & Associates Inc. (Lemont, Ill.) at the workshop on essential tools for a successful sales program. Marketing focuses on getting a mutually beneficial exchange to take place between a buyer and a seller, while sales is the personal side of marketing. 

The four goals of marketing, Ferraro said, are to “get attention, arouse interest, create desire, and motivate action.”

To achieve marketing success, scrap recyclers should consider these tips:

• Prepare a short- and long-term plan;
• Develop an instinct for industry trends;
• Know your competition;
• Know your customers’ needs;
• Identify your potential customers;
• Understand personality types;
• Develop your sales staff. “It’s critical for management to develop its sales staff—to train them for sales,” Ferraro said. “If you’re in sales and your company doesn’t train you, get books and train yourself”;
• Create public relations, advertising, and promotions plans; and
• Establish a budget.

In particular, Ferraro stressed “it’s essential for your company to have a Web site.” Scrap firms can use the Internet for many purposes, such as describing their services, disseminating public relations, and improving customer service. Scrap operators should also market their Web sites by “finding reasons for customers and prospects to go there.” It’s also important for recyclers to spend time online “researching the Web sites of suppliers, customers, associates, and competitors,” she said.

Of course, once you’ve established a marketing program, you have to keep it going—and you can do that in these ways:

• Review your marketing goals and plan every year;
• Develop an ongoing market research program;
• Keep building on customer relationships;
• Keep promotions going;
• Bring back old successful programs; and
• Don’t be overzealous in your approach.

In a related session, Ferraro maintained that sales success—and business success in general—can depend on having good listening skills, stating that “listening can make or break you.”

Poor listeners, she said, “can make it to the management level, but they will never be respected by their employees or their peers.”

To be a good listener, Ferraro noted, “the general rule is to listen, think, and then respond.” In conversations, interrupting is all about power—“taking the power from someone else to speak yourself.”

According to Ferraro, the six guidelines for good listening are:

• Clear the clutter from your brain;
• Learn to process what the other person says;
• Physically stay focused;
• Take notes;
• Ask questions; and
• Ask for clarification.

How can you tell if you’re a good or bad listener? “If you’re talking more than 50 percent of the time, if people ask you not to interrupt or to let them finish, you have poor listening skills,” she said. “When in doubt, ask a friend—and really listen to their response.”

Ferraro concluded with a quote by American editor and historian Jared Sparks: “When you talk, you repeat what you already know. When you listen, you often learn something.”

Protecting Employees—and the Environment 

Reduce the Exposure, Reduce the Risk. Manual material-handling accidents are the most costly in the scrap industry, noted Edward Steele of Wausau Insurance Cos. (Wausau, Wis.) at one of the convention’s four safety workshops. Steele outlined the most costly injuries in the ISRI-sponsored RecycleGuard workers’ comp program, drawing from Wausau’s data on 819 disabling injuries over a four-year period that cost nearly $24 million. The top-four injury categories were:

1. Manual Material Handling—22 percent of total costs (an average of almost $28,000 per injury);
2. Individuals Struck By or Caught Between Objects—21 percent of total costs (an average of $27,000 per injury);
3. Slips and Falls From Elevations—15 percent of total costs (an average of $32,500 per injury); and
4. Machine Injuries—13 percent of total costs (an average of $106,500 per injury).

In stressing the importance of personal protective equipment (PPE), Steele asserted that “people are the number-one cause of accidents and people are the number-one source of preventing accidents. It is a must that scrap companies have PPE guidelines for employees and guests.”

Then he offered guidelines to help management and supervisors evaluate, develop, and implement effective loss controls. For example, he suggested “purchasing vehicles and equipment to minimize manual material handling as well as developing lifting and handling techniques for specific lifting tasks.” Scrap operators should also control their material staging activities and plan their work area layout to “minimize lifting and handling materials from floor level, above shoulder height, or away from the body,” he advised.

To prevent being struck or caught between objects, employees should be cautioned about the hazards of moving vehicles and equipment and warned to stay out of traffic lanes. “Plan material-handling patterns and the layout of aisles to reduce the possibility of employees being struck by objects,” Steele cautioned.

As for preventing slips and falls, scrap recyclers should encourage employees to wear safety footwear with slip-resistant soles. In addition, Steele recommended “keeping truck steps, rungs, and handholds in good repair and training employees to use three points of contact when getting into and out of vehicles.”

To minimize machinery-related injuries, managers should “require a complete guarding program, including maintenance, inspection, and accountability,” Steele said. Employees should also be required to “shut off, lockout, and deenergize equipment to a zero energy state prior to repair, maintenance, or adjustment.”

In sum, he observed, “if you can reduce the exposure, you can reduce the risk.”

Increasing Vehicle Recycling. In a session on the Vehicle Recycling Partnership (VRP), Claudia Duranceau of Ford Motor Co. (Dearborn, Mich.) highlighted four research projects that could affect the recycling of material from automobile shredder residue (ASR). The VRP, part of the U.S. Council for Automotive Research (Southfield, Mich.), is working with the U.S. Department of Energy’s Argonne National Laboratory (Argonne, Ill.) and the American Plastics Council (Washington, D.C.) on a five-year research and development effort to “maximize sustainable recovery and recycling of current and future automotive materials,” she noted. The effort has roughly $3 million in annual funding, split 50/50 between government and industry sources, said Duranceau, who detailed the following projects:

• a thermal conversion process from Changing World Technologies Inc. (West Hempstead, N.Y.) that on a “small trial basis” has converted organic material in ASR to a biodiesel product. In the pilot, conducted at a Philadelphia Navy Yard plant, heavy metals from ASR did not appear in the biodiesel product but instead were converted into a type of mineral fertilizer. At presstime, this “very, very promising” project was conducting a trial with 3,000 pounds of ASR;
• a glycolysis system that processes polyurethane foam directly from ASR, creating a polyol oligomer suitable for manufacturing new foam products. A 1,000-pound scale-up was underway, producing up to 100 gallons of polyol for evaluation by potential customers in the chemical industry;
• Argonne’s Automated Plastic Recovery process that uses bulk separation, froth flotation, and polyurethane washing to sort various products such as polypropylene, polyethylene, nylon, and acrylonitrile-butadiene-styrene directly from ASR; and
• a PCB “Design for Experiment” study aimed at developing a reliable methodology for testing PCBs on products recovered from ASR. Any products destined for commerce must have a PCB level below 2 ppm, Duranceau stressed.

She also discussed conducting a shredder-lead study to characterize ASR, exploring issues such as ASR fractions, energy usage, wastewater treatment, the number of pickers on the line, use of trommels, wet-vs.-dry processes, and other topics. She called scrap processors her “reality check,” noting that all approaches to increasing vehicle recycling must make business sense.

Managing Your Human Resources Generations in the Workplace. There are four distinct generations in today’s workplace, each with different priorities and values that define its approach to work, said Cam Marston of Marston Communications (Charlotte, N.C.). The four generations are:

Matures: This oldest and wealthiest generation, which accounts for about 5 percent of the workforce, is composed of individuals born prior to 1946. Shaped by the Depression and World War II, Matures tend to value duty, honor, and national pride and believe that rewards come from sacrifice and teamwork.

Baby Boomers: This group, born between 1946 and 1964, are the biggest generational force in business, with a 45 percent share. The large size of their generation made Baby Boomers competitive, materialistic, and workaholic, with much of their identity defined by their jobs. Many in this generation grew up in the idealistic 1960s and, hence, tend to be optimistic.

Generation X: Close behind the Baby Boomers—at 40 percent—is Generation X, which covers people born from 1965 to 1979. This group came of age when many national institutions, public figures, and corporate practices came under fire and began to erode. As a result, they tend to be cynical, pessimistic, self-reliant, and suspicious of Baby Boomer values.

Millennials: Today’s youngest workers—born from 1980 to 2000—make up 10 percent of the workplace pie. This group tends to be optimistic, individualistic yet group-oriented, busy, and ambitious yet unfocused. As pampered children, raised as their parents’ “friends,” Millennials are renowned for delaying their entry into adulthood.

In the workplace, managers must understand the different values and priorities of these generations as well as what motivates them, Marston said. Each, for instance, has a different view of time. For Matures and Baby Boomers, time is a currency to be invested into their future. Matures view time rigidly in a punch-the-clock fashion, while Baby Boomers believe that more time on the job means greater success, he noted. For Generation X and Millennials, time is a currency they’re reluctant to give away. Generation X has a fluid and flexible view of time, believing that it doesn’t matter when they work as long as they get the job done, Marston noted. Millennials view work time as not their real life—it’s what they do between weekends to earn money for their life away from work.

Each generation also has a different view of the balance between work and private life. This is most notable in the younger generations, said Marston. Generation X individuals, for example, place high value on work/life balance, though they will sacrifice it occasionally. Millennials, on the other hand, are determined to maintain that balance and expect their employers to help them do it.

To recruit workers from different generations, companies must use targeted marketing efforts that match the values of the targeted generation, Marston advised. You can attract Generation X and Millennial workers, for instance, by appealing to their individuality, offering them the opportunity for more vacation time, promoting flexibility, and acknowledging that their work isn’t their life.

As for retaining Generation X and Millennial employees, studies show that their job satisfaction is determined by their relationship with their boss, largely because they are loyal to people, not to companies or organizations, Marston noted. Other important retention factors include their salary and the ability to be themselves on the job.

Managing Diversity. “Regardless of the size of your company, recruiting for and managing diversity is one of the most sound business decisions an employer will ever make,” said attorney Victor Cardwell of Woods Rogers P.L.C. (Roanoke, Va.) at a workshop on managing a multicultural scrap operation.

Managing diversity, Cardwell explained, “is not just tolerating those of a different race, religion, nationality, or culture. Diversity is accepting and respecting those qualities that make each of us truly unique and acknowledging the contributions that each of us can make to an organization.”

While there’s “no law that requires you to value or respect ‘diversity’ or ‘multiculturalism,’” he observed, “as an employer you have to recognize them.” Employers who choose not to recognize their employees’ differences are setting themselves up to violate discrimination laws, Cardwell warned. Federal discrimination laws apply to companies with 15 or more employees while firms with fewer than 15 employees are covered by state laws that generally mirror federal laws.

The grandfather of these laws is Title VII—the Equal Employment Opportunity (EEO) law. “If you don’t have it and you conduct business in the U.S. with 15 or more employees, get it,” he advised. “You want to be able to demonstrate that you are an EEO employer.”

This and other discrimination laws “set an expectation of a minimum level of conduct for employers,” Cardwell noted. “Training your managers can help you avoid falling below those expectations, thus avoiding the expense of litigation.”

He then offered the following 12 observations about achieving multicultural balance in the workplace:

• Long-term change requires effort;
• Time, energy, money, and emotional commitment are essential;
• Support from the top is critical;
• Don’t raise expectations that may eventually be dashed;
• Expect discomfort—change is unsettling;
• Be clear about the depth and breadth of the effort;
• Work to modify the systems already in place;
• Help employees understand the big picture beyond individual roles;
• Set measurable criteria;
• Demonstrate that the result will be better than what currently exists;
• Training is necessary but not sufficient; and
• There is no final result—it is a continuing process. 

Hiring the Smart and Legal Way. The first issue in hiring employees is to review the sources where your company gets its applicant pool, noted Victor Cardwell in a workshop on smart—and legal—employment practices. “Unless a company is subject to affirmative action obligations,” he said, “there is generally no requirement as to the sources where a company must seek applicants. However, the more diverse the search area, the more choices a company will have.”

As an option, he cited using temporary agencies since they will be responsible for prescreening applicants. Be aware, however, that Equal Employment Opportunity Commission guidelines “suggest that temporary workers may be the employee of not only the temporary agency, but also the client company under appropriate circumstances and, as such, other pitfalls may be lurking.”

Job applications are a critical first line of defense. “If you do the right things at the hiring stage,” Cardwell said, “you’ll probably do the right things at the firing stage—it’s all about documentation.” After all, a well-designed application “may uncover information about an applicant’s personality and character that will highlight the potential for undesirable workplace behavior,” he noted.

If your company uses a preprinted application form, make sure the form is legal, Cardwell advised. “Employers using preprinted forms should ensure they are in compliance with the Americans With Disabilities Act and the Immigration Reform and Control Act, which were enacted too recently to be incorporated into many of the standard published forms,” he observeOne general rule in hiring is to make sure you can justify to a third party that the individual selected was the best-qualified person for the position. “In this regard,” Cardwell said, “objective criteria are a lot easier to defend than subjective criteria.”

Regarding references for prior employees, he advised making one person in your firm responsible for answering all such requests. References should be “as neutral as possible and provide nothing more than name, position, salary, and dates of employment in order to minimize exposure.” 

Plant Brothers Receive ReMA Award

ISRI bestowed its Lifetime Achievement Award on two scrap recycling brothers—Arnold and Morton Plant—for their contributions to the industry.

The Plant brothers were destined for the scrap business. Their grandfather founded H. Klaff & Co.—a Baltimore, Md., scrap firm—in 1901. Klaff brought his son-in-law, Marvin Plant, into the family business, paving the way for Marvin’s sons to do the same.

The Plant brothers grew up in the scrapyard, working there as teens in the summers. But the family insisted that they complete their education. Both graduated from the University of Pennsylvania’s Wharton School before serving honorably in the U.S. military in the 1950s.

After the military, the Plant brothers officially joined H. Klaff, building the business in the emerging stainless and alloy markets. They guided the company through many scrap cycles, eventually joining the Samuel G. Keywell Co. They led that company’s Plant Division and helped the firm expand through more acquisitions. Today, the Chicago-based Keywell has seven U.S. processing operations as well as one plant in Germany.

As they guided Keywell, the Plant brothers were also dedicated servants to ISRI’s predecessor association, ISIS, serving first as officers of the Seaboard Chapter, then in national roles. 

Arnold led the association’s convention committee for 18 years and served in other important committee positions. Morton served as an ISIS director-at-large, president of the Metal Research and Education Foundation, and ultimately as president of the association from 1980 to 1982.

As they served their company and industry, the Plants also provided invaluable leadership and support to a host of Jewish, community, and business organizations, showing that they are men of both broad vision and big hearts.

A Man and His Cows

“I like cows,” Manny Bodner says.

Those three words only partially explain why Bodner, president of Bodner Metal & Iron Corp. (Houston), felt compelled to create Chloe, the world’s first scrap recycling cow. There’s more to the story, of course—much more.

The story really starts with Bodner’s fondness for collecting CowParade figurines. CowParade is a public art phenomenon in which artists paint and/or decorate lifesized fiberglass cows that are then displayed in cities around the world. CowParade also makes figurines of each cow to sell as collectibles to cow fans like Bodner.

This hobby gave Bodner an idea: Wouldn’t it be great to create a cow for the scrap industry? He also had an ulterior motive: Recycling cow figurines would give him a unique gift for attendees at the Gulf Coast Chapter’s 2005 summer convention, which he is organizing.

So, last summer, Bodner began his cow quest by contacting CowParade Holdings Corp. in West Hartford, Conn. The group’s president—Jerry Elbaum—liked the idea of a recycling cow, so he assigned the project to Marge Abrams, creative director, who in turn selected artist Mary Beth Whalen. Next came a series of conference calls among Abrams, Whalen, Bodner, and ReMA staff, who sent the artist reference materials such as scrap photos and ReMA literature. The goal was to create “a whimsical cow with a serious message,” Bodner explains. “We wanted it to have meaning for our industry.” After several sketches, the parties selected a final design and the artist went to work. The entire creative process took about eight months, wrapping up in March.

The result was Chloe, a colorfully painted bovine who depicts the entire “Recycowling Adventure.” From afar, she shows a “very pleasant” pastoral scene, which is designed to “reveal the harmony of the scrap recycling industry with the environment,” Bodner notes with a father’s pride.

Closer up, Chloe reveals the recycling process in detail. You can see how specific end-of-life products—from cars to paper to tires—progress through the scrap recycling cycle. The buildings—which represent scrap consuming operations—bear the names of scrap grades such as PET, Candy, Taboo, and Barley. Similarly, the “address” numbers on the buildings correspond to numerical ReMA scrap specifications. The scene also includes the words Design for Recycling, a banner touting the three Rs (reduce, reuse, recycle), and hot-air balloons adorned with chasing arrows, the ReMA logo, and the ReMA acronym. Different modes of scrap transport—railroads, trucks, and vessels—are represented. The international aspect of the industry is suggested by a globe and a kangaroo. Chloe even captures the sometimes “crazy nature” of the scrap business, Bodner says, pointing to illogical scenes such as an upright cow walking a cat and dog as well as a pug sitting on a blanket with a picnic basket and a bottle of wine. 

Chloe made her debut at the ReMA convention in New Orleans, where she was displayed in the lobby of the Sheraton hotel on Canal Street. After that event, she was shipped to the Gaylord Texan Resort in Grapevine, Texas, to be the centerpiece of the Gulf Coast Chapter’s convention June 16-18. There, she will be sold through a silent auction. Meanwhile, Chloe figurines will be given to convention registrants (while supplies last) as a collectible keepsake of the event.

To learn more about Chloe, contact Manny Bodner at 713/223-1148 or scrap@bmicorp.com. To register for the Gulf Coast Chapter convention, visit www.gulfisri.com.

Hedging Hints

Jeanette Schwarz Young, a trader with the New York Board of Trade, and Mark Lewon of Utah Metal Works Inc. (Salt Lake City) explored financial tools such as options and futures contracts in the Hedging 101 workshop. Recyclers can use hedges to minimize their risk when buying scrap, but they shouldn’t expect to make a profit on the hedge itself, Young explained. Instead, the hedge is designed to protect the profit you anticipated when initially purchasing the scrap, Lewon noted. For instance, a recycler who purchases 25,000 pounds of insulated wire that won’t be processed immediately might want to simultaneously sell one 25,000-pound copper contract on Comex to balance his position. That way, if the market declines and he loses money on the physical copper, he can make it up by buying back the Comex contract at a profit, Lewon said. The recycler’s position was balanced because he bought and sold exactly 25,000 pounds of copper in each deal. If, instead, his physical copper purchase involved, say, 40,000 pounds of wire (an amount that doesn’t match a Comex copper contract, which is always for 25,000 pounds), the recycler has a tough choice: He can sell one contract if he thinks the market is likely to go up or two if he expects the market to go down, Lewon explained.

Rolling Out RIOS

After years in the works, ISRI’s Recycling Industries’ Operating Standard—nicknamed RIOS—is ready for implementation. The standard is designed to help scrap recycling facilities achieve measurable and continuous improvement in their quality, environmental, health, and safety management efforts. Environmental consulting firm First Environment (Boonton, N.J.) drafted the standard with input from both ReMA members and staff. Typically, such standards don’t include guidance material to support their implementation, but RIOS is different. In addition to the standard itself, RIOS includes a user-friendly implementation package—a “toolbox”—that walks scrap operators through the standard’s requirements. At the ReMA convention, a panel of RIOS developers reviewed the standard’s basic structure and features, noting how it is built around a “plan/do/check/act” approach. The RIOS panel included (left to right) John Hayworth of Metal Management Inc. (Newark, N.J.), Tod Delaney of First Environment, Ben Morris of Morris Recycling Inc. (Albany, Miss.), and Fred Cornell of Hugo Neu Schnitzer East (Jersey City, N.J.).

Jim Fowler, Kent Kiser, and Robert L. Reid

They came, they saw, they had a blast at this year’s ReMA convention in New Orleans. Recapture the fun in this highlight reel.