ISRI News: November/December 2006

November/December 2006

ISRI Board Meeting Enjoys Southern Flavor in Charleston
Charleston, S.C., a city renowned for its Civil War history, low-country cuisine, temperate weather, and fine architecture, showed off its Southern hospitality during the joint ReMA leadership and New Southern Chapter meeting in late October. That gathering marked the first time ReMA combined its national governance meeting with a chapter's activities, which included a golf tournament, a market report by Jason Schenker of Wachovia Corp. (Charlotte, N.C.), two receptions, and a final-night dinner.

The Charleston event also marked the last formal meeting of the ReMA board of directors in 2006. The board acted on several important association measures, most notably by approving ReMA's 2007 operating budget. The board also passed the following motions:

• Hire Olcott Consulting Group (McLean, Va.) to serve as the association's principal investment adviser;

• Modify the ReMA policy manual to allow ReMA volunteer leaders and staff to fly business class via the lowest possible fare for travel outside North America;

• Authorize ReMA to issue a letter of credit for the security deposit required in the lease for the association's new office space. (As of Nov. 17, ReMA's new address will be 1615 L St. NW, Suite 600, Washington, DC 20036-5610. The main phone number will change to 202/662-8500, but all direct staff contact numbers and e-mail addresses will remain the same.);

• Approve the recently drafted "Recommended Practices and Procedures for Minimizing the Risks of Purchasing Stolen Scrap Materials"; and

• Authorize ReMA President Robin Wiener to send a letter to the president of Wal-Mart, introducing the scrap recycling industry and explaining ReMA's Design for Recycling® concept.

The next meeting of the ReMA board is Feb. 15-17 at Loews Coronado Bay Resort in San Diego. Visit www.isri.org for schedule information and registration details.

Nickel Takes Center Stage at Pittsburgh Roundtable
Nickel prices have gone through the stratosphere in 2006, making it a memorable year. This heady market gave scrap recyclers a lot to talk about at the Pittsburgh Chapter's nickel/stainless roundtable, held Sept. 21 in Pittsburgh.

In the first quarter, nickel ranged narrowly between $14,500 and $15,000 a mt, but it "exploded" in April and May, trading up to $23,000 a mt, said Simon Merrills, CEO of ELG Metals Inc. (McKeesport, Pa.), one of the roundtable's four speakers. Nickel kept rising in July, when the average spot price shot to $26,585 a mt, followed by an even higher August average of $30,743, he reported. As of September, he added, nickel was on track to post an annual average greater than $20,000 a mt.

Why such a dramatic run-up in nickel? Merrills pointed to the threat of a strike at primary nickel provider Inco, buoyant demand for stainless steel, declining LME warehouse stocks, rampant Chinese demand, and "heavy speculation" by investment funds.

On the last point, Derek Benham, president of BenMet NY (New York), asserted that funds have gone from being "somewhat of a sideshow" in commodity markets to the point where they're now "calling the shots." In fact, he stated, "price movements have much more to do with flows of money into and out of these investment vehicles than with supply and demand factors in the real, physical world." By some estimates, he said, fund business now represents 70 to 80 percent of the turnover on the LME. In short, "control of pricing has shifted from the physical world to the investment world." Failure to recognize this shift, he said, is a "recipe for disaster."

As Benham explained, there are two types of funds operating in the markets—managed commodity futures funds and index funds. Managed funds have grown from $25 billion in 1995 to $150 billion in 2006, while index funds have increased from less than $10 billion in 2000 to $120 billion in 2006, he said. Managed funds attempt to follow trends in the market and thus can be short or long, whereas index funds tend to be long only.

Overall, the fund community "controls" the equivalent of 190,000 mt of nickel, or 14 percent of the world market, Benham said. Funds rarely take physical delivery of material. Their position, he noted, is in future delivery dates on the LME.

Despite the current influence of funds in the nickel market, Benham said he expects the "next move in this market is likely to be determined by the physical business."

According to Jean-Michel Beysserie, president of Eramet North America Inc. (Coraopolis, Pa.), the world primary nickel supply is expected to total 1.3 million mt in 2006, up about 4 percent from 2005. With world nickel demand also forecast to reach 1.3 million mt—a year-on-year increase of 6 percent—the nickel market will end the year essentially in balance. Previously, Eramet had expected the market to show a 20,000-mt surplus for the year, Beysserie noted.

Turning to the stainless market, world production in the first half of 2006 was 13.3 million mt, 1.4 percent more than the same period in 2005, Merrills said. With second-half 2006 production expected to reach 13.6 million mt, stainless production could total 27 million mt this year—up 9 percent compared with 2005, he said.

In the stainless scrap market, supplies are "always short," Merrills stated. "That has been my mantra for years, and it's still true." The first half of 2006 saw deep cutbacks in scrap suppliers from Eastern Europe, he noted, but scrap availability has increased since then. Scrap supplies, especially from demolition projects, have been increasing thanks to the strong nickel market and solid scrap demand from stainless mills, he said.

This year, Merrills continued, total scrap availability will approach 7.6 million mt, 7.5 percent higher than in 2005. Despite growing availability, scrap supplies are lagging demand, which is increasing about 9 percent a year.

The nickel/stainless roundtable also examined the foundry and investment casting industries. According to Jack Drage, chairman and CEO of Remelt Sources Inc. (Cleveland), there are about 2,300 foundries of all types in the United States, encompassing 800 ferrous foundries and 1,500 nonferrous foundries. Combined, these companies shipped 14.1 million tons of products in 2005 and had sales of $32.9 billion, he said. These operations have an estimated combined production capacity of 17 million tons, of which 11.3 million tons is iron, 1.5 million tons is steel, 3 million tons is aluminum, and 390,000 tons is copper-based metal, he reported.

The investment casting business is a specialized niche in the foundry market that makes complex castings for aerospace, industrial gas turbines, automotive, and general industry, Drage noted. The North American investment casting industry comprises 130 companies that operate 170 foundries and employ 30,000 workers, he said. Together, these companies had sales of $3.2 billion in 2005 and account for 46 percent of global investment casting production.

Imported castings pose the greatest challenge to the U.S. industry, Drage said. Since 1998, imports have risen 7 percent, reaching 3.2 million tons in 2005, with China accounting for 24 percent of the total, he reported.

'China Is the Story' in Global Steel, Danjczek Says Thomas Danjczek , president of the Steel Manufacturers Association (Washington, D.C.), provided the keynote address at the consumers' night dinner, part of the Pittsburgh Chapter's annual nickel/stainless roundtable. Here, he is joined by chapter officers (left to right) Alasdair Gledhill of ELG Metals Inc. (McKeesport, Pa.), president; Jeremy Lincoln of Lincoln Metal Processing Co. Inc. (Erie, Pa.), vice president; Ray Peterson of Allegheny Raw Materials (Pittsburgh), treasurer; and Ray Medred of Metal Management Pittsburgh Inc. (Elizabeth, Pa.), secretary. Danjczek focused much of his remarks on China, stating unequivocally that "China is the story. Anything else I say is embellishment. What happens in China will determine how you sell your scrap. It will determine who our customers are. It will determine our market prices. It's the story." China has seen "astronomical growth" in its steel production in the past six years, approaching 400 million mt of crude steel production in 2006, he said. The problem for U.S. steelmakers is that they are competing on an uneven playing field against Chinese mills, which enjoy subsidies, grants, debt forgiveness, preferential loans, weak regulation enforcement, and barriers to foreign investment. "U.S. steelmakers can't compete against governments," Danjczek said. Despite these disadvantages, U.S. steel producers are doing well, with apparent steel consumption in the United States expected to increase 7 percent to 10 percent this year, he said. Construction is still the largest sector for U.S. steel, but the energy business is "the bloom on the flower right now in the steel business," with projected 23 percent growth this year, Danjczek said.

Scrap Expands Editorial Staff
Lindsay Holst has joined Scrap as assistant editor. Holst is a recent graduate of Boston University, where she earned a B.S. in journalism with a concentration in magazine writing. She was a contributing writer for the Broke in Boston city guidebook, a contributor to two BU student publications, and the winner of a universitywide short fiction competition.

For Scrap, Holst will primarily write feature articles and departments, including reporting on ReMA and non-ISRI events. In addition, she will assist with proofreading and production tasks.

Contact her at 202/662-8531 or lindsayholst@scrap.org.

Congressman Visits ReMA Members
Rep. Tim Murphy (R-Pa.) toured two Pittsburgh-area scrap processing operations—Tube City IMS and Keywell LLC, both in West Mifflin, Pa.—in early September to learn about the scrap recycling process and better understand the industry's contributions to the environment and the economy. Murphy is a member of both the House Recycling Caucus and the House Energy and Commerce Committee.

At the scrap plants, John Keyes of Tube City and Nick Cerminaro of Keywell described their material-handling and processing operations, illustrating the complexity of sorting and preparing various materials into commodity-grade products. Murphy was impressed by how much tonnage the companies process and how many workers they employ in well-paying, equipment-focused jobs operating cranes, balers, shears, and shredders. During the tours, the host recyclers and ReMA staff members stressed the industry's commitment to worker safety and told Murphy of recyclers' critical need for efficient, reliable transportation to deliver their products to market.

Contact ReMA's Billy Johnson at 202/662-8548 or billyjohnson@isri.org if you would like to invite an elected official to tour your facility.

Recycling Caucus to Consider Definition of Solid Waste
ISRI staff members met with Reps. Paul Gillmor (R-Ohio) and Frank Pallone (D-N.J.), cochairs of the House Recycling Caucus, this fall to ask the group to address the definition of solid waste in federal regulations as its first order of business. The goal is to clarify that scrap is not waste and recycling is not disposal. ReMA staffers and former Rep. Al Swift (D-Wash.), representing the Paper Recycling Coalition, made presentations to both congressmen and their staffs. ReMA and PRC asked the cochairmen to call a meeting of the caucus to begin discussing the issue, with the possible outcome being legislation to address the matter. Though Gillmor and Pallone agreed to pursue this issue through the caucus, nothing is likely to occur until after the November elections.

ISRI Kicks Off 2007 Membership Year
ISRI officially launched its 2007 membership year in October after closing the books on a record 2006. When the 2006 membership year ended Sept. 30, ReMA had 1,426 company members, including 244 new members. The unprecedented 2006 growth pushed ReMA through the 1,400-member mark for the first time since 1998, when industry consolidation and adverse market conditions began to alter the industry landscape.

The 2007 recruitment drive began Oct. 1 with the "15/12" special promotion, in which new members that join in the fall pay 2006 prices for their 2007 membership and receive ReMA membership benefits in the remaining months of 2006 at no extra charge.

For more information on ReMA membership, contact Amy Carey at 202/662-8538 or amycarey@isri.org or visit www.isri.org/joinisri.

Rail Issues Roll On
ISRI staffers met twice this fall with U.S. Department of Commerce officials to discuss challenges scrap recyclers continue to experience regarding rail transportation. In a meeting with Assistant Secretary for Manufacturing and Services Al Frink, ReMA and representatives of the steel and chemical industries reviewed the effect of poor and unreliable rail service on U.S. manufacturing. Subsequently, ReMA and other organizations met with Dave Cammarota, director of the Office of Materials and Machinery, to consider ways to address rail problems.

The ReMA staff also met in October with Chip Nottingham, the new chairman of the Surface Transportation Board, who seemed dedicated to improving the board's complaint process and achieving clear, measurable progress in enhancing rail service. Nottingham also suggested ways ReMA could advocate improvements in freight infrastructure.

Also in October, the U.S. Government Accountability Office issued a report on changes in the rail industry since the Staggers Act. Though the report noted the act's many positive effects on the rail industry, it also found cause for concern regarding competition and capacity. To read a summary or the full report, visit www.isri.org/gaohighlights or www.isri.org/gaoreport.

In another rail-related move, ReMA has joined a group of rail shippers to jointly file comments on the recent Surface Transportation Board proposal to revise the guidelines for smaller rate cases. The STB proposal would apply one of three standards to measure the reasonableness of a rail rate, depending on the maximum value of the case over a five-year period. This rulemaking has the potential to protect many captive shippers against unreasonably high rail rates for the first time in a generation. The proposed standards are lengthy and complex, however, and might warrant substantial revisions.

Contact Steve Hirsch at 202/662-8516 or stevehirsch@isri.org.

Roundtable Wrap-Up ReMA's Commodities Roundtable Forum, held Sept. 13-15 in Chicago, garnered about 575 attendees who came to network and hear timely market reports on aluminum, copper/brass, ferrous, and electronics. The event also included a mini expo that showcased the products and services of nine vendors. ReMA thanks the following companies for exhibiting and/or sponsoring events at this year's Commodities Roundtable Forum: American Metal Market Harris Press & Shear Jupiter Transport Services Platts RadComm Systems Corp. SRI Quality Systems Registrar Thermo Electron NITON Analyzers Weigh Point Inc. Wendt Corp.

ISRI in Brief

• ISRI has posted a document on its Web site to help its members understand the new National Vehicle Mercury Switch Recovery Program. To access the document, "National Vehicle Mercury Switch Recovery Program: What You Need to Know," log in to the ReMA Web site and go to www.isri.org/mouhowto.

• ISRI submitted comments in September on the U.S. EPA's proposed "significant new use" rule for mercury switches in motor vehicles under the Toxic Substances Control Act. This proposed rule intends to define as "significant new uses" any use of elemental mercury in switches for new vehicles and in new aftermarket replacement parts for late-model vehicles.

  In developing this proposal, the EPA examined the life cycle of automotive mercury switches and the environmental and health hazards associated with elemental mercury during this life cycle. The agency concluded that "any resumption of manufacture or processing of mercury for the significant new use would lead to an increase in mercury emissions at EAFs and other facilities involved in scrap recycling and consumption."

  In its comments, ReMA commended EPA for taking a broad life-cycle approach and noted that the proposed rule reflects many of the principles of Design for Recycling®.

  Contact David Wagger at 202/662-8533 or davidwagger@isri.org.

• ISRI has joined with the U.S. Chamber of Commerce to fight for small business and free enterprise before Congress, the White House, regulatory agencies, the courts, and governments around the world. ReMA and the chamber have created a joint Web page at www.isrivotes.com where members can easily register their opinions and contact their elected officials about issues important to the scrap recycling industry. This Web page also contains links to other valuable sources of information, including voter registration, ReMA PAC, and the recycling caucuses. ReMA will be updating this Web site throughout the 110th Congress as issues and events develop.

  Contact Billy Johnson at 202/662-8548 or billyjohnson@isri.org.

Charleston, S.C., a city renowned for its Civil War history, low-country cuisine, temperate weather, and fine architecture, showed off its Southern hospitality during the joint ReMA leadership and New Southern Chapter meeting in late October.