ISRI Convention and Exposition Coverage—The Future Begins With You

 

May/June 1992 

The convention marked the end of their terms for 15 chapter presidents, including the following. Standing: Gary Hendler of L. Lavetan and Sons Inc. (York, Pa.), Keystone Chapter; Charles Town of Intra American Metals Inc. (Indianapolis, Ind.), Indiana Chapter; Walter P. Seder of Shetucket Iron & Metal Co. (Norwich, Conn.), Southern New England Chapter; Richard Lerner of Cycle Systems Inc. (Lynchburg, Va.), Seaboard Chapter; Frank J. Cozzi of Cozzi Iron & Metal Inc. (Chicago), Chicago Chapter; and Barry Fleet, Rocky Mountain Chapter. Seated: Howard L. Goldman of Lake Erie Recycling Corp. (Buffalo, N.Y.), Empire Chapter; Robert Wallens of Midwest Steel & Alloy Corp. (Cleveland), Northern Ohio Chapter; David Jacobs of BPI Inc. (Pittsburgh), Pittsburgh Chapter; David Marco of LMC Metals (Richmond, Calif.), Northern California Chapter; Marvin Siegel of Spartan Iron & Metal Corp. (Spartanburg, S.C.), Southern Chapter; and Martin Forman of Forman Metal Co. (Milwaukee), Wisconsin Chapter.

"We've been able to take action and progress. We're an organization that has commitment. We're willing to plan and work hard," stated outgoing ReMA President David Serls at the association's recent convention, summarizing ReMA's dedication to ensuring a healthy, prosperous scrap recycling industry.

Serls, president of Colonial Metals Co. (Columbia, Pa.) and L. Lavetan and Sons Inc. (York, Pa.), devoted much of his final presidential address at the President's Breakfast to reviewing ReMA's recent accomplishments, which, he said, have brought the association to "a place from which we can continue to build and progress, despite the economy, and in the face of any adversarial conditions."

Indeed, ReMA's fifth annual convention, held in San Francisco in March, gave each of the 2,400 attendees the opportunity to "build and progress" by offering commodity spotlights, management workshops, a trading forum, and an exhibition showcasing the latest equipment and technology.

Serls focused on the event's theme—"The Future Begins With You"—and looked ahead as ReMA embarks on its strategic reorganization plan, continues many critical projects, and welcomes newly elected officers: President Arnold Gachman, president of Gachman Metals & Recycling Co. (Fort Worth, Texas); First Vice President D. Cap Grossman, president and chief operating officer of Grossman Iron & Steel Co. (St. Louis); Second Vice President James A. Fisher, president and chief operating officer of Fisher Steel and Supply Co. (Muskegon, Mich.); and Secretary/Treasurer Shelley E. Padnos, executive vice president and chief administrative officer of Louis Padnos Iron & Metal Co. (Holland, Mich.).

In reviewing ReMA's progress, Serls cited major accomplishments such as the association's group storm water permit application, which he said "is one of the largest such undertakings in the nation and ranks as the biggest project in ReMA's history." At the breakfast, Gachman discussed the permit application, which includes approximately 1,100 member facilities, noting that, if accepted by the Environmental Protection Agency (EPA), it will save participants "multiple millions of dollars" compared with individual permit fees and will help them meet their storm water obligations. Before the permit can be approved, 10 percent of the applicants must be sampled, operating practices must be developed, and final negotiations must be held.

Grossman looked at ReMA's strategic reorganization plan, "an enormous undertaking" that will require compromise and commitment to implement. The new structure, he asserted, will encourage and allow more member involvement.

Another major accomplishment has been ReMA's emergence as the "voice of recycling," thanks to its public relations efforts. Fisher introduced the association's new video—"The Original Recyclers"—which promotes the scrap recycling industry, emphasizing three points: Scrap recyclers have been recycling for years, they help the environment and conserve natural resources, and they provide jobs and support their communities. Fisher asked members to become "ISRI ambassadors" and make public relations a collective effort.

Padnos previewed the association's five-chapter Environmental Operating Guidelines: A Foundation for the Future, which clarifies existing regulations and identifies "the simplest, most cost-effective, and practical methods of complying with them," she said. To aid members, ReMA will be offering seminars on the manual across the country as well as the opportunity for on-site assistance.

ISRI Executive Director Herschel Cutler acknowledged Serls for making ReMA "a factor in Washington," noting his many appearances on Capitol Hill and his participation on the Recycling Advisory Council—a blue-ribbon panel of leaders from all sectors interested in recycling issues—among other groups. Cutler then showed a videotaped interview that Serls and he conducted with Sen. Max Baucus (D-Mont.) and Rep. Al Swift (D-Wash.), major players in reauthorization of the Resource Conservation and Recovery Act (RCRA) and Superfund. The legislators voiced their support for a scrap/waste distinction in recycling laws and recognized the need to build markets for recycled products.

Despite ReMA's recent progress, many issues still need to be resolved, Serls concluded at the President's Breakfast, noting, "RCRA still has to be reauthorized, business has to get better, and we must convince the powers that be that shipping for recycling is not the same as arranging for disposal or treatment of a hazardous substance."

Business Management

It's not easy running a scrap recycling business in the 1990s. Scrap executives are facing an ever-growing array of management challenges posed by the economy, environmental requirements, and new federal laws.

Answering labor questions. The recently passed Americans With Disabilities Act (ADA), for example, could drastically affect the hiring practices of all employers and could increase their workers' compensation liability, said Bonnie Glatzer, a partner with Pettit & Martin (San Francisco), at a labor issues workshop. The law, which takes effect July 26 for companies with 25 or more employees, prohibits discrimination against disabled individuals if they are qualified to perform the essential functions of a job, she explained. Individuals are considered disabled if they have a physical or mental impairment that limits one or more major life activities, such as seeing, walking, hearing, or breathing; if they are limited from doing a broad class of jobs; if they have a record of an impairment, such as alcoholism; or if they are perceived as having a disability based on myth, fear, or stereotype, such as AIDS and high blood pressure. Individuals are not considered disabled on the basis of personality traits, disadvantaged background, advanced age, obesity, pregnancy, and temporary nonchronic physical conditions, such as a broken leg.

The ADA requires employers to provide a reasonable accommodation to enable disabled individuals to perform a job. What is reasonable depends on the nature and cost of the accommodation in relation to the company's size, Glatzer said, adding, "It's a balancing test." The law doesn't require employers to hire a disabled individual if the accommodation would place an undue hardship on the company, or if the disabled person poses a direct threat to himself or other employees. Some factors that can't be considered, however, include the cost of the accommodation in relation to the job's value, employee morale, and insurance concerns.

In the staffing process, employers must ensure that their job applications and locations are not biased against disabled persons, Glatzer said. She advised employers to review their job descriptions and carefully specify the essential job functions and requirements of each position, adding such language as "Job duties include, but are not limited to, ... ." Prior to making a job offer, employers may not give a candidate a physical exam, although they can require a physical-agility test, an equipment-operation test, and a drug screening. Once a job offer is made, however, employers can require a physical exam and retract the offer if the results indicate the individual can't perform the job.

Sexual harassment is another workplace issue that all employers should address, said Julie L. Hall, an associate also with Pettit & Martin. There are two basic types of sexual harassment, she reported: quid pro quo activities, in which rewards are offered for sexual favors, and hostile work environments, in which intimidating, hostile, abusive, or offensive elements are pervasive in the workplace.

The effects of sexual harassment can be far-reaching. For example, she noted, companies may be held liable for the actions of their supervisors and executives. In addition, Hall pointed out, a woman who is not the direct object of harassment can still file a claim, and courts can award both compensatory and punitive damages.

Employers can reduce their risk of claims by conducting sexual harassment prevention workshops for employees, as well as drafting and disseminating a sexual harassment manual that identifies unacceptable behavior, provides an outlet for complaints, and ensures that complaints will be investigated promptly and kept confidential, Hall said.

Containing costs. Financial concerns are another issue preoccupying scrap recycling executives, especially in these recessionary times. Regardless of economic circumstances, however, recyclers should commit to cost management, said Rick Rifkin, vice president and division manager of OmniSource Corp. (Fort Wayne, Ind.). Cost management, which aims to increase productivity as well as reduce expenses, is not limited to processing operations; it applies to brokering firms too, he noted.

Outlining cost items on a typical balance sheet, Rifkin—along with John Lipinski Jr., senior vice president and chief financial officer for Tube City Inc. (Glassport, Pa.), and Christopher Charlebois, president of Advance Metals Recycling (Buffalo, N.Y.)—identified the following areas to scrutinize:

• Accounts receivable. "It's increasingly important to consider the viability of your customers—even steel mills," Charlebois said. If you have accounts that have not responded to your billing notices, retain the services of a collection agency. Although the agency will charge you a percentage of the receivables collected, "50 cents on the dollar is better than nothing," he pointed out. Bad debts can also be charged off against your taxes, he said, but you'll probably only gain about 30 cents on every dollar of receivables.
• Accounts payable. Try to take advantage of creditors' best terms such as discounts for early payment, Lipinski suggested.
• Long-term debt. Every balance sheet should include this item, which is a source of cash, the Tube  City executive said.
• Inventories. "Get rid of your monuments," Lipinski said. To increase your cash flow, you must sell off scrap items that don't move, even if the price is at a discount, he explained. Recyclers should also examine their parts inventories, selling off parts for equipment they no longer own and retaining only those parts used daily. Most suppliers can ship common parts overnight, he added.
• Equipment. Leasing arrangements may offer you better price negotiation power and interest rates than outright purchases, Charlebois noted, adding that cost management dictates shutting down old, inefficient equipment, a move that can often reduce payroll requirements, spare parts use, and repair and maintenance costs.
• Payroll. In difficult times, Charlebois advised, consider freezing or deferring salary increases. The latter case, Lipinski added, is similar to borrowing cash from employees, so you should pay interest on the deferred amount. If you must lay off employees, he advised, analyze who is most appropriate: "A burner making $2,000 a month likely pays for himself." A strategy to consider for increasing employee productivity is to modify some workers' schedules to 10-hour days in an effort to decrease nonproductive time around breaks, he noted.
• Office expenses. Send information via fax instead of overnight mail whenever possible, Lipinski recommended. Scrap firms should also consider eliminating their telex lines if not regularly used and tracking calls by telephone extension to reduce employees' personal calls, he said.
• Professional fees. Review all bills from accountants, legal counsel, and auditors to determine what services you're really paying for, Charlebois said, and then ask yourself whether you can perform some of these tasks in-house. It's also important to regularly shop around for professionals, he noted, even if you've retained the same trusted firm for years. If you're offered a better deal by a company you've never employed before, you can always ask your current provider to meet the offer.
• Insurance. You can reduce your premium costs by increasing deductibles and eliminating some policies, Lipinski said. It's vital, however, to hold on to policies that would protect you in case of a disaster that might otherwise put you out of business, he said.
• Telephone. "Get in the habit of taking long-distance calls instead of returning them," Charlebois suggested.
• Travel and entertainment. Travel is important, Rifkin noted, but you'll manage costs better if you combine trips when possible and drive to meetings rather than fly when practical.
• Electricity. Run equipment during off-peak hours to reduce power bills, Charlebois said, asserting that his firm saves thousands of dollars every month—even after factoring in the cost of another employee—as a result of operating its shredder at night.

Other expenses to keep an eye on, the speakers suggested, include donations, janitorial services, dues and subscriptions, oil and grease, oxygen and bottled gas, uniforms, and freight rates.

Exploring banking issues. Adding to the financial concerns of scrap recyclers are changes in the banking industry, which are making it more difficult for recyclers to secure business loans. While shying away from the phrase "credit crunch," Dick Fletcher, senior vice president of Bank of America (Oakland, Calif.), admitted, "It's definitely more difficult to get credit" in today's difficult economy. Banks have become more risk-averse; they are downsizing; they are preoccupied with ensuring the success of current customers; and they are subject to more intense federal regulations, which have affected commercial real estate loans in particular, he noted. These changes have prompted many banks to centralize operations and set a threshold limit of credit on the local branch level.

The banking industry as a whole has become less personal and more focused on a customer's cash flow and assets than on character and loyalty, Fletcher asserted. Even so, he urged scrap recyclers to nurture a strong relationship with their account representative/loan officer because "they're the number-one advocate for your company in the bank."

John Lipinski echoed this sentiment, saying that the key to successful banking relationships is to "know your banker." Bankers especially hate surprises because financial surprises are usually bad, he asserted, so inform them of any changes that could affect your company's health. In addition, reassure the loan officer that your loan is secure by providing unrequired information, such as monthly balance sheets, and help them understand your business by giving them a tour of your plant, he advised. Lipinski also outlined the extensive information required by banks these days, including written reports on the company, its executives, its computer systems, and even its consumers.

Focusing on environmental concerns. This focus on information and documentation is becoming a larger part of every scrap company's management practices. For instance, more and more firms are conducting environmental audits to assess their environmental compliance status, keep ahead of regulations, improve public relations, satisfy criminal or civil penalties, or expedite the sale of a property, among other reasons, said Frank J. Priznar, vice president of Roy F. Weston Inc. (Washington, D.C.), at a session on environmental auditing.

Firms that simply wish to learn the value or environmental status of their property can conduct an environmental liability site assessment, which costs around $5,000. An assessment is not as detailed as an audit, Priznar pointed out, and the results are not measured against any standards. A regulatory compliance audit, which costs approximately $10,000, is a step above an assessment and provides information to meet and anticipate regulations. A management audit helps identify the connections between a company's environmental problems and its management practices and usually runs $25,000. A total environmental risk audit, which costs $20,000 and up, goes beyond compliance to address the potential financial liability and human health risks at a firm's operations.

In selecting an environmental auditor, scrap companies should ask the following questions, Priznar advised: Is environmental auditing the firm's full-time occupation? Does the auditor adhere to generally accepted practices and principles? Does the firm emphasize service? Does the company exhibit an objective outlook? Does it instill trust by virtue of its specialized knowledge? Does the firm belong to an association of auditing practitioners? Kelly Nash, environmental manager of the secondary metals division of Commercial Metals Co. (CMC) (Dallas), added that scrap companies can find qualified auditors by contacting environmental attorneys and sending out requests for proposals to prospective firms.

Nash discussed CMC 's in-house auditing and compliance efforts, which are based on written environmental operating guidelines. CMC 's program, he pointed out, encompasses training sessions, checklists, reports, and record maintenance, and helps employees avoid buying hazardous materials over the scale, among other things.

When conducting an environmental audit, scrap companies must be careful to protect the sensitive nature of the results through attorney-client privilege, noted Lynne A. Monaco, a partner with Nixon, Hargrave, Devans & Doyle (Rochester, N.Y.). For information to be protected under attorney-client privilege, it must be in the form of oral or written communication between the attorney and client; the purpose of the communication must be to secure legal advice; and the information must be treated confidentially.

To establish attorney-client privilege, a scrap recycling firm should include the attorney on its audit team and allow the attorney to direct the audit, serving as the liaison between all experts/consultants and the scrap firm. The purpose of the audit should be defined, and all reports should be carefully worded—"There's no room for sloppy or wrong conclusions or speculation that doesn't have a firm foundation," Monaco stated. Outside parties should be required to sign confidentiality agreements, and all documents should be treated as confidential, which entails writing "attorney-client privilege" at the top of each page, filing the papers in a separate folder, and keeping them in a locked cabinet. Limit the distribution of audit papers only to parties in the privileged circle, yet establish in what circumstances you will waive the privilege, such as when the property is sold, she suggested. Finally, outline a document-retention program in which you specify how long records are to be kept.

Despite its benefits, attorney-client privilege can't prevent the disclosure of primary data, such as results of a Toxicity Characteristic Leaching Procedure test, or shield information in cases in which a court has ordered an audit. Moreover, if an audit reveals an environmental violation, the company must act to correct the problem, or else it will leave itself open to prosecution—and severe penalties—for knowingly violating the law, Monaco stressed.

Companies that initiate self-directed cleanups, on the other hand, can actually mitigate penalties against them, according to the Department of Justice, Monaco noted.

Getting the most out of PR. Companies that initiate press relations are on their way to garnering positive media coverage, said speakers at a public relations workshop. Nevertheless, to get real results, firms must offer the media newsworthy information, program panelists emphasized.

A press release promoting a company's presence in a community, even if tied into a special event such as Earth Day, is not sufficient, they agreed. "We in the press tend to look at Earth Day as an artificial event," explained Elliot Diringer, environmental writer for the San Francisco Chronicle. In fact, he noted, using the event as a publicity tool could hurt even the best public relations efforts. "Too many people try to latch their message onto Earth Day, and the result is that they get lost in the crowd."

"This year, Earth Day is not a news story," added Marie Felde, a reporter with the Oakland (Calif.) Tribune, who explained that newspapers, magazines, and broadcast stations are looking for "something that makes people want to know more," such as a report on a unique recycling process.

Panelists concurred that the media generally don't produce stories about an industry's existence, with one reporter—Betsy Bayha of San Francisco 's KQED-FM—stating that "it would be unthinkable to do a story on an industry." Nevertheless, noted Tom Linden, the environmental and medical reporter for KRON -TV in San Francisco , "The scrap industry is an intrinsically interesting story." The challenge, he said, particularly for television, is "how to tell that story visually and quickly."

Because the media tend to focus on conflict, Diringer suggested, emphasizing the friction within a situation is one way to gain attention. For example, he noted, "If Congress were about to pass a law that would hinder recycling, it would make a good story if pitched right." Expanding on that idea, Linden proposed that the industry might see more media coverage if ReMA and its member firms filed lawsuits against government entities, a strategy that has helped the publicity efforts of environmental groups such as Greenpeace, he pointed out.

Scrap recyclers should also consider where they're sending their story ideas and press releases, speakers said. The editors of a newspaper's business section, for example, might be more open to your story than the environmental reporter, Diringer noted. In addition, David Assmann, vice president and director of Conservatree Information Services (San Francisco), pointed out that his company uses trade publications to get its messages out, since publicity in the trade press can translate to a story in the mainstream media.

Examining family matters. In addition to these business-related issues, family-owned scrap companies must often manage the personal concerns of their principals. In family businesses, conflicts can arise due to sibling rivalry; transitions of power; differences in lifestyle, age, and stage of life; and other instances in which the principals focus on individual goals rather than collective goals, said Craig E. Aronoff, a family business expert and professor at Kennesaw State College (Marietta, Ga.).

Many companies attempt to mask internal conflict, living with ambiguity and refusing to communicate rather than seeking a solution, but "conflict cannot be avoided, only managed," he remarked. Effective conflict management requires a positive attitude that focuses on group goals, a willingness to communicate, and a focus on the future that emphasizes stewardship of the company's resources for future generations, Aronoff said.

Transitions of power can be particularly troublesome if conflicts exist. To ease the problem, he advised, family companies should start planning five to 15 years in advance of the transition, develop a succession plan, and address the financial concerns of the retiring individual.

To fully resolve conflicts, family business owners must rediscover family values because "strong families create strong family businesses," he asserted. This can be done by drafting a family constitution, or mission statement, that defines the group's beliefs, goals, and priorities, Aronoff said.

Making the most of MRFs. Both opportunities and pitfalls confront scrap companies that decide to establish or work with material recovery facilities (MRFs), particularly when dealing with plastics, according to two speakers at a workshop on dealing with MRFs.

Stan Norwalk, a former executive with Union Carbide Corp. who's now a principal with S. Norwalk & Associates (Danbury, Conn.), discussed the expanding plastics market, noting that plastic bottles—a major material for many MRFs—account for only 4 billion of the 60 billion pounds of plastics produced each year. What about the other 56 billion pounds? he asked, advising recyclers to figure out how to collect and market materials in this vast market.

Scrap companies interested in plastic recycling can work with municipal—or public—MRFs, brokering materials or providing supplemental services such as flaking, baling, and sorting to upgrade the material. Or, Norwalk said, they can opt to establish a private MRF, accepting plastics from household, commercial, and institutional sources and processing the material for resale or fabricating it into a marketable product on-site. As in other businesses, he cautioned, "the low-cost operator will win out." To be a low-cost operation, a MRF must be relatively large, which could require substantial capital expenditures on equipment, he noted.

Scrap recyclers can operate a MRF profitably—if they are cautious and develop experience in processing and marketing household recyclables, noted John Isaacs, president of American Iron & Supply Co. (Minneapolis), which operates a MRF with another private recycling company. In its short history, and despite its efficiency, his MRF has faced "real problems" and incurred "huge costs" related to licenses, landscaping, fencing, paving, working with waste haulers, and municipal politics. Other major concerns for MRF operators are market saturation of certain household recyclables and potential competition from municipally operated MRFs.

To make money, privately run MRFs must be able to secure market orders and may have to charge for processing material, Isaacs asserted. Recycled-content legislation could improve markets for some postconsumer materials, he pointed out, and community public relations can help a MRF succeed through public exposure and acceptance.

Legislation and Regulation

Nowhere are the pitfalls of operating a scrap recycling company in the 1990s more evident than in current environmental and trade legislation and regulations, which are imposing a greater and greater burden on scrap companies.

Dealing with Superfund and RCRA issues. To wit, "the net of Superfund liability is growing and catching more parties on secondary liability," including many scrap recyclers, stated Daniel M. Steinway, a partner with Anderson, Kill, Olick & Oshinsky (Washington, D.C.). Recyclers can trace their Superfund problems, in part, to the fact that courts don't understand the scrap industry or the distinction between scrap and waste, he noted.

Complicating matters is the fact that logic based on general corporate philosophies doesn't work in Superfund defense strategies, he noted. Potentially responsible parties (PRPs) under Superfund have only three defenses against cleanup cost liability, Steinway said: acts of God, acts of war (a defense a company might try to use if it claims generation of a hazardous substance was related to a war effort), and defense by contract (a strategy that would require possession of warranties or indemnification or contracts showing that a firm performed the action that released a hazardous substance on behalf of someone else).

On the other hand, a company may be able to legally argue that it's not a PRP, Steinway noted. In recent Superfund cases involving lead-acid batteries, for instance, recyclers have used five arguments in an attempt to free themselves from secondary liability as PRPs:

• the recycler sold the batteries as a commodity, not a waste, "for valuable consideration" and had no intent to dispose, as is required under Superfund;
• the recycler did not maintain title to or control of the material;
• the recycler sold the batteries whole and did not affect the integrity of the cases;
• the recycler maintained no managerial responsibility for how the batteries were handled or broken; and
• prosecuting recyclers for recovering scrap batteries is contrary to the nation's recycling goals.

Unfortunately, the courts have rejected all these arguments, leaving scrap companies fully liable.

To minimize liability costs, Steinway advised that all firms sent a PRP notification letter make an immediate claim on every general liability and property insurance carrier they ever had. (Timing is important since, in some states, an insurance company can refuse a claim on the basis that it was prejudiced by late notice.) Although most recent policies contain pollution exclusions, "pre-1973 policies are gold," he said. "Carriers aren't going to lie over and give away money," he added, "but as a procedural matter, it won't hurt to notify any and every carrier."

Another Superfund cost control strategy Steinway recommended is participation in a common defense group. As J. Thomas Wolfe, ReMA counsel/manager of government relations, pointed out, this allows group members to share in legal fees and consultant costs. In addition, he noted, "the EPA prefers to work with groups."

PRPs should also examine "creative allocation formulas," Steinway suggested. Companies in some industries have proposed that since they shipped industrial waste, not hazardous waste, to a Superfund site, their liability should be half of that placed on hazardous material shippers. "Since scrap is shipped as part of a sale," he explained, "you may be able to fight for an even lower percentage of costs."

Some scrap firms have not simply been named PRPs and been sent bills for a portion of the EPA's cleanup costs at a Superfund site, but, instead, have been issued "Section 106 orders," which require PRPs to take responsibility for cleaning up the site. The only defense to not complying with such orders is "good cause," Steinway said, noting that if the courts don't agree with a PRP's "good cause," the EPA can levy additional charges on the PRP.

Steinway also reviewed the provisions that recyclers should require in a Superfund settlement agreement, including obtaining a full release from liability, outlining alternative dispute resolution procedures, and protecting themselves against additional-work blank-check provisions that could leave them open to more requirements after a settlement. Scrap recyclers should also only sign an exculpatory clause, which is simply an agreement to settle, not an admission of guilt, he recommended. In addition, scrap companies should clarify which parties they are settling with and require contribution protection coverage that prevents other parties from seeking compensation from them.

Janine M. Landow-Esser, a partner with Holleb & Coff (Chicago), provided a review of RCRA, noting the sections that affect scrap companies are Subtitle C for hazardous waste, Subtitle D for solid waste, and Subtitle I for underground storage tanks. She also defined important RCRA terms, including solid waste and hazardous waste. Current RCRA terminology interprets a solid waste as any garbage, refuse, sludge, and other discarded material that is abandoned, recycled, or inherently waste-like, she said.

Hazardous wastes are wastes that are listed—that is, they appear on RCRA's list of such wastes—or characteristic, which means they are ignitable, corrosive, reactive, and/or toxic. Scrap materials are exempt—for the moment—from restrictions imposed on hazardous wastes. If certain scrap materials are ever defined as hazardous wastes, recyclers that handle such scrap would be considered hazardous waste treatment, storage, and disposal facilities and would have to be licensed as such. States may be stricter than the federal government in defining some materials, such as used motor oil, as hazardous, which could create problems for recyclers in those states, noted Landow-Esser.

To protect against RCRA problems, scrap recyclers should ensure that all wastes from their operations are handled and disposed properly, that their contracts outline the liability of each party, and that any speculative accumulations of material at their plants have a verifiable market. Also, maintaining a clean operation and minimizing complaints from the community can prevent a visit from a regulator, Landow-Esser noted.

Dealing with foreign trade obstacles. On the international level, the scrap industry faces its biggest threat from the Basel Convention on the Control of Transboundary Movement of Hazardous and Other Wastes. In a foreign trade workshop, Robert C. Reiley, director of the office of metals and commodities for the International Trade Administration, U.S. Department of Commerce, noted that the Basel Convention became effective May 5. The convention's basic aim is to prevent hazardous materials from being dumped on Third World countries, Reiley said, but the treaty could also cut off trade of "wastes" between countries that have signed Basel—a list that includes China, France, Saudi Arabia, Sweden, and Switzerland—and nonsignatory countries—such as the United States.

To prevent trade from being disrupted under Basel, the Organization for Economic Cooperation and Development (OECD)—which includes the 24 major industrialized nations of the world—has established a three-tiered, green/amber/red trade program in which materials on the green list can be traded freely; materials on the amber list require approval from the receiving country prior to shipment; and materials on the red list face severe restrictions or bans. Fortunately, all metal scrap is on the green list, Reiley noted. Among its advantages, the OECD proposal frees the United States from being subject to "national treatment"—that is, having to abide by the consuming country's standards and definitions—and also prevents OECD countries from imposing barriers that discriminate against U.S. materials.

Editor's note: The OECD environment committee approved the green/amber/red proposal at its meeting in late March. The full OECD council must now consider adopting the proposal at its next meeting.

Commodity Spotlights

The economic vagaries of 1991 staged a relentless assault on the scrap commodity markets, pummeling the industry with combinations of burdensome stocks, diminished demand, tight scrap supplies, and low prices. While some materials fared better than others, all executives hope that the markets will rise phoenix-like from the ashes of 1991 to live again in 1992.

Steering down aluminum's rough road. Assessing the hard-hit aluminum market, A. Stephens Hutchcraft Jr., president and chief operating officer of Kaiser Aluminum & Chemical Corp. (Oakland, Calif.), asserted, "Eastern European supply is the key to 1992." He noted that more than 800,000 metric tons (mt) of Russian aluminum was exported to the West in 1991, overloading London Metal Exchange (LME) warehouses and putting pressure on the world market. (See "Bulging Aluminum Warehouses," beginning on page 79.)

The Russians have been forced to ship this huge tonnage to obtain hard currency, Hutchcraft said. While much of the metal came from smelters in the traditional form of 99.5 and 99.7, he noted, significant quantities of off-grade, routinely produced material has also found its way to the West. Russia has also been selling off some of its military stockpiles, primarily from the airframe industries, as its defense industry downsizes.

How can the United States respond to the problem of Russian oversupply? Hutchcraft outlined four options: do nothing, impose quotas, offer government-to-government assistance, and "purchase aluminum from the Russians at a price above current market, such as 70 cents a pound. It could be paid partly in cash, partly with food or other necessities, and partly in equipment for modernization and environmental controls." The United States could then hold the metal off the market until Western economies strengthen and are capable of absorbing the metal. "The U.S. government could sell the aluminum in world markets over a 10-year period beginning in 1994," Hutchcraft remarked.

The primary advantage of this option for the Western aluminum industry would be that "the immediate depressant of large and unplanned-for exports from Russia would be removed," he stated. The program would also give Russian smelters a chance to shut down obsolete or environmentally unacceptable smelting capacity.

This approach would also put goods and services immediately into Russian plants. Moreover, "if implemented soon, the program would position the United States as a supplier to Russia in an important way before the Japanese enter, which is certain to occur as soon as the Kurile Islands issue is settled," Hutchcraft asserted. Since the bulk of any revenues from future aluminum sales would be spent in the United States , additional jobs would be created at home, he argued, and U.S. suppliers of consumer and industrial goods and services would share in the success.

Turning to all-aluminum used beverage cans (UBCs), Hutchcraft noted that UBCs exceeded a 60-percent recycling rate for the third consecutive year in 1991. (See "UBC Recycling Slips," beginning on page 68.) "In addition, aluminum industry recovery from purchased scrap during the past 10 years has provided about 25 percent of the totalU.S. aluminum metal supply," he reported, "and continuing source-reduction efforts have cut the weight of the aluminum can by at least 30 percent from 20 years ago."

What does the remainder of 1992 hold for aluminum? Hutchcraft sees world demand for prime aluminum setting another record high, "maybe 15.5 million mt, even with a sluggish U.S. recovery and weak Japanese economy." Western supply will register at about 15 million mt, he forecast, with no additional voluntary cuts expected by Western producers. "If Russia ships 800,000 mt again," he warned, "we will build inventory and the price will stay low. If Russia ships less than 500,000 mt, inventory will start to drift down and prices will slowly firm."

Looking further ahead, Hutchcraft said that a potential increase of aluminum use in automobiles "could be a significant factor after 1994, as significant as the recyclable aluminum can perhaps."

Copper holds strong. Copper fared much better in 1991 than other nonferrous metals, said John F. Champagne, president of Magma Metals Co. (San Manuel, Ariz.). North American demand for refined copper in 1991 was 2.42 million mt, a 1.4-percent decline from 1990, he reported, but "it is significant that U.S. demand was well above 2.1 million mt—far above some forecasts." This unexpectedly strong demand during a weak economic period produced a good year for the copper industry, he asserted, adding, "We anticipate a turnaround in North American copper demand during 1992." In coming years, he predicted, "copper will continue its long-term trend of steady growth, with a growth rate averaging somewhat below 1 percent a year throughout the 1990s."

Looking overseas, Champagne expects the Japanese and European economies to resume growth this year, which will increase worldwide demand for copper by more than 2 percent in 1992 and "maintain the average copper price at over $1.05 for the balance of the year." As the North American copper industry grows during this decade, it will produce "a considerable surplus of refined copper and copper in concentrate," he observed. "This copper is welcome in Europe and the Far East where chronic deficits are imposed by inadequate natural resources."

On the supply side, LME copper stocks surpassed 300,000 mt in March—near an eight-year high—and non-U.S.-producer stockpiles were also reportedly mounting. Even so, "visible stocks of copper in warehouses are less than six weeks" of consumption, Champagne said, noting that this is commonly accepted as the equilibrium level. Refined stocks in the United States , on the other hand, are critically short due to steady demand and a series of smelter shutdowns and production disruptions, he explained. Fortunately, a squeeze on consumers' inventories in 1991 was moderated by increases in smelter production, he said.

Supply problems have been exacerbated by a tightness in scrap and also what Champagne called the smelter "bottleneck," noting that the capacity to treat the large surplus of copper concentrates is simply not available and is unlikely to become available for some years to come. As a result, he foresees continued high production costs, with treatment charges approaching the inflation-adjusted peaks of the 1970s. This, in turn, will increase the cost of refined copper production, which will likely affect the price of copper. The questionable state of copper supplies, in fact, kept prices in almost continuous backwardation on both the Commodity Exchange and the LME since mid-1987. Copper prices have been in contango since late 1991, however.

In 1993, Champagne foresees a growth in demand of 5 to 6 percent as the world economic recovery gathers momentum. "This will create a deficit of roughly 300,000 mt and average copper prices in the area of $1.20 for 1993," he ventured.

Looking to 1995, Champagne expects North American refined copper production to be close to 3 million mt. Even with growth in domestic demand, however, there will still be a surplus of refined copper exceeding 200,000 mt annually, most of which will go to smelters in Europe and the Far East .

Champagne also reviewed how North America has transformed itself in the past few years from a net importer of refined copper to a net exporter. "Only North America is self-sufficient in the production and use of this metal for industrial development," he said. While the U.S. copper smelting industry has shrunk from 19 companies in 1980 to eight in 1990, those that remain have vastly improved their competitive position in the world copper market, mainly by improving environmental controls and reducing labor costs, Champagne said. As a result, labor productivity at some U.S. copper companies has more than doubled and copper production has increased 29 percent.

Counting on nickel's promise. Nickel also suffered through a difficult 1991, but there are encouraging signs ahead. While nickel demand is likely to remain soft in the near term, sharp improvement is expected by year's end, with this improvement spilling over into 1993, said Frederick R. Demler, first vice president of PaineWebber Inc. (New York City). Last year's total refined nickel consumption of 681,000 mt represents a drop of 0.1 percent from 1990 figures, he reported. While consumption from Western Europe and Japan decreased 4,000 mt and 3,000 mt, respectively, U.S. demand rose 5,000 mt, with all other countries showing a 1,000-mt-increase. Looking ahead, Demler expects refined nickel consumption in 1993 to escalate 6.3 percent, to 724,000 mt.

Refined production grew 28,000 mt in 1991, reaching 705,000 mt. While production is expected to slip to 675,000 mt in 1992, it will rebound to 694,000 mt in 1993, Demler asserted. Nickel production costs averaged $3.52 per pound in 1991, he noted, with exact costs varying greatly from country to country. The low-cost producer during that year was PT Inco in Indonesia , which reported costs of $2.20 a pound; at the same time, it cost a producer in the Dominican Republic $4.00 per pound.

Mine output also grew in 1991, rising 32,000 mt due to growth in Indonesia, Japan, Korea, the Dominican Republic, and the United States. Several projects could further increase mine output in the next five years, including expansions at Inco's Manitoba plants, Sherritt Gordon's expansion, and a number of replacements and expansions inAustralia, Indonesia, and Japan. Detracting from these gains are scheduled closures, suspended development work, unanticipated losses, and labor problems, with reported cutbacks in 1991 and 1992 totalling 45,835 mt.

As for nickel stocks, Demler expects inventories to rise from 109,000 mt in 1991 to 113,000 mt in 1992, then drop to 93,000 mt in 1993. In March, inventories stood at approximately 11 weeks' supply, compared with 25 weeks in 1982 and a peak of 35 weeks in 1977, he observed. Russian exports of nickel to the West continue to be a significant factor in the market, he said, but some Russian cutbacks are likely in 1992, based on reports of export duties, licensing, raw material shortages, and other issues.

Examining price trends, Demler expects steady nickel prices in the near term, averaging $3.00 to $3.50 a pound in 1992, with 1993 bringing higher prices around $4.50 a pound.

Stainless steel—the major consumption area for nickel—has a positive future thanks to some key long-term trends, such as the rebuilding of the Eastern European infrastructure, continued growth in Southeast Asia, general capital expenditures, and environmental spending, Demler stated.

After a strong uptrend of 12 percent in the first quarter of 1991, stainless output dropped dramatically throughout the year, finishing with a 1.1-percent increase, compared with a 1.7-percent rise in nickel consumption, he reported.

In March, stainless steel orders were up, production was improving, and stocks were low in the United States, Demler noted. He expects the domestic market to improve throughout the year, accompanied by an upturn in Western Europe by the end of the second quarter and a turnaround in Japan in the second half of 1992.

Hedging gold. One way to reduce the risks of short-term fluctuations in the metal markets is to implement an effective hedging, or "risk management," program, asserted Robert B. Wickham, vice president of finance of American Barrick Resources Corp. (Toronto), who focused on the gold market at a precious metal spotlight. His company's hedging program is a mix of three elements: forward selling, options, and gold loans. "The mix keeps changing," he said, "depending on such key factors as expected operating costs, expected capital expenditures, cash-flow requirements, impact on earnings, and the gold price itself."

Gold's unique production and market fundamentals make hedging particularly attractive, Wickham asserted. For instance, there is no unsold gold inventory, there is a ready market for it, and there is no need to package or advertise it. In addition, unlike commodities such as oil or copper, which are normally in backwardation, gold futures are usually in contango, commanding a premium to the spot market price. This feature, along with gold's liquidity and investor interest, helps the company manage its financial risks—"namely, the cost of financing and the volatility of the gold price," Wickham said.

Looking to gold prices, he noted that the metal has fallen from a high of $825 per troy ounce (t.o.) in 1980 to $420 per t.o. in 1990, with a further dip to around $350 per t.o. in the past two years. "All this is a function of supply and demand," Wickham asserted, reporting that Western mining output of gold reached 55.7 million t.o. in 1990—nearly double its 1980 level.

Gold scrap sales added an average of 338 mt per year to the supply during the 1980s, he said. Scrap sales provided nearly as many tons in the low-price year of 1990 (441 mt) as in the high-price year of 1980 (492 mt), he remarked, indicating that the scrap supply appears to be somewhat insensitive to price.

Most current gold demand is coming from central banks, industrial users, private investors, and jewelry fabricators—the largest growth segment. While demand has remained relatively firm, Wickham observed, gold prices haven't moved up because some central banks have been selling metal to balance their gold assets with their other currencies, the republics of the former Soviet Union likely have been liquidating some of their gold reserves to obtain hard currency, and gold reserves have been over-estimated. In this decade, however, "we can reasonably expect to see demand outstrip supply, resulting in some improvement in the gold price," he predicted.

Putting steel quality first. In addition to market demands, scrap recyclers must also meet the increasing demands of their consumers, many of which are exhibiting "an unyielding demand for high-quality, competitively priced raw materials," in the words of one steel scrap consumer.

At ReMA's ferrous spotlight, five steelmakers agreed that scrap quality is the most critical factor in the manufacture of steel products. Since scrap is the most expensive production element for many steelmakers, poor scrap quality can create costly problems. For example, inferior scrap can ruin a heat of steel, costing the steelmaker between $35,000 and $50,000, said Richard Menster, senior purchasing agent for Timken Co. (Canton, Ohio).

Scrap quality also can affect melt-shop costs by reducing the life of furnace components, wasting energy, endangering employee safety, and increasing environmental costs, noted Michael S. Layfield, general manager of raw materials for Chaparral Steel Co. (Midlothian, Texas). Oversize scrap, he pointed out, can break electrodes, which cost $4,550 to $7,750 to replace.

In addition, noted Harvey M. Ulfers, advanced buyer for John Deere Foundry Waterloo (Waterloo, Iowa), poor scrap quality can lead to increased electrical costs, longer melt time, and increased alloy consumption.

Scrap quality is judged, in part, on the consistency of the material in a shipment, Menster said, adding, "We want no surprises." Scrap density is also a concern, as heavy pieces can slow melt rates, noted Keith Busse, vice president and general manager of Nucor Corp. (Crawfordsville, Ind.). "Scrap can be too dense," he asserted, adding that inferior or improperly processed scrap can reduce a steelmaker's yields.

Part of this new quality push by steelmakers is an effort to meet the growing quality demands of their customers, Menster said, many of which have implemented quality-assurance programs such as Ford Motor Co.'s Q1 Preferred Quality Supplier and Caterpillar's Quality Assured Supplier.

Equally important is the economic fact that quality scrap improves a steelmaker's cost-effectiveness, enabling it to better compete in the world market, said Fred Vance, purchasing manager for U.S. Steel (Pittsburgh). Layfield echoed this remark, saying, "Scrap and scrap quality play a big role in our ability to be a low-cost producer, not just in the basic cost of scrap—which can account for 35 to 45 percent of the price of a shipped steel product—but also in furnace operating costs, which make up an additional 15 to 20 percent of the finished costs," he said.

As proof of their emphasis on scrap quality, several steelmakers are stepping up efforts to monitor their scrap materials and suppliers. Timken, for example, is installing computer systems at its plants to "optimize" available materials for its scrap mix in order to "minimize" scrap and alloy costs, Menster pointed out. "We've also developed computer-charge designs based on scrap costs and chemistry requirements to determine scrap values by grade in the making of our steels," he said.

U.S. Steel, on the other hand, has audited the quality performance of its scrap suppliers and found that, "while there was some improvement in the scrap shipments, it was below gains achieved by other suppliers." Scrap companies are well-advised, he said, to implement quality-assurance programs at their operations based on statistical process controls to produce a higher quality, more consistent product.

All the steelmakers emphasized the importance of improving communication between scrap suppliers and scrap consumers. Layfield said that scrap quality, as a factor in reducing steelmaking costs, represents a joint venture between scrap recyclers and steelmakers. Vance summarized these feelings by saying, "We need to tell you more about what we need, and you have to share with us the problems you encounter."

—Elise R. Browne, Kent Kiser, and Si Wakesberg

The convention marked the end of their terms for 15 chapter presidents, including the following. Standing: Gary Hendler of L. Lavetan and Sons Inc. (York, Pa.), Keystone Chapter; Charles Town of Intra American Metals Inc. (Indianapolis, Ind.), Indiana Chapter; Walter P. Seder of Shetucket Iron & Metal Co. (Norwich, Conn.), Southern New England Chapter; Richard Lerner of Cycle Systems Inc. (Lynchburg, Va.), Seaboard Chapter; Frank J. Cozzi of Cozzi Iron & Metal Inc. (Chicago), Chicago Chapter; and Barry Fleet, Rocky Mountain Chapter. Seated: Howard L. Goldman of Lake Erie Recycling Corp. (Buffalo, N.Y.), Empire Chapter; Robert Wallens of Midwest Steel & Alloy Corp. (Cleveland), Northern Ohio Chapter; David Jacobs of BPI Inc. (Pittsburgh), Pittsburgh Chapter; David Marco of LMC Metals (Richmond, Calif.), Northern California Chapter; Marvin Siegel of Spartan Iron & Metal Corp. (Spartanburg, S.C.), Southern Chapter; and Martin Forman of Forman Metal Co. (Milwaukee), Wisconsin Chapter.