January/February 2011
With several months of strong demand and prices behind them, participants in BIR’s fall meeting in Brussels were moderately optimistic that economic growth is ahead, even if volatility remains a long-term feature of the scrap commodity markets.
By Joe Pickard and Rachel H. Pollack
Godiva, Neuhaus, Leonidas—some of the world’s most renowned chocolate companies have their roots in Belgium. Brussels, the capital city, features outposts of these well-known brands as well as artisanal producers who are reinforcing the country’s cocoa-centric reputation. Perhaps the abundance of this mood-enhancing substance at the fall 2010 World Recycling Convention of the Bureau of International Recycling (Brussels) added to the positive outlook of the more than 900 delegates and their guests, who convened in Brussels for the Oct. 24-26 meeting.
The attendees’ measured optimism was a marked change from the uncertainty of the previous BIR meeting in Istanbul in late May. Though the scrap commodity markets had had their ups and downs since the start of the year, by late October many commodities had experienced months of higher prices and demand. Even if this growth leveled off in late 2010 and early 2011—as many expected it would—the short-term good news seemed to outweigh the lingering economic concerns.
Primary among those concerns was the weak U.S. dollar and its impact on trade. With the dollar at historic lows against the euro and other currencies, export markets in developing countries are suffering, several speakers asserted, which could reduce those countries’ demand for scrap. Others warned of a “currency war” between the United States and China that could spill over into other countries in a race to the bottom. Also troubling were renewed calls, primarily in the developed world, for policies that prevent the export of raw materials.
Despite those trade troubles, market sentiment has been improving recently, reported Bob Garino, ISRI’s director of commodities, at the Nonferrous Division meeting. The global economic recovery is taking root on the strength of positive growth in China and the other BRIC countries (Brazil, Russia, and India) as well as improving industrial production in the advanced economies, he said. The weaker U.S. dollar and increased investor interest (including in exchange-traded products) were also providing a boost to commodity markets.
Garino cautioned that uncertainties such as sovereign debt issues in Europe, the abovementioned protectionist trade policies, and higher interest rates in China remain, however. Thus, the economic recovery, though on “reasonably sound footing” both in the United States and worldwide, remains “fragile and subject to external shocks.”
Calmer Waters in the Ferrous Market
Christian Rubach of TSR Group (Bottrop, Germany), BIR Ferrous Division president, reported calmer waters in the ferrous scrap market recently, with scrap demand having rebalanced in early October. He highlighted China’s key role in steel production and the ongoing consolidation of the Chinese steel industry, reporting that China seeks to have the top 10 steel producers account for 65 percent of domestic steel production by 2015. He also noted economic development in India and Brazil, with the World Steel Association (Brussels) forecasting that India will be the world’s third-largest steel producer by 2011. The geographic disparity between buyers and sellers makes international trade essential to the scrap industry, Rubach said, and he warned of the dangers of trade and currency wars that seemed to be brewing between the United States and China. He reiterated BIR’s commitment to free and fair trade.
In 2010, Indian steel production is likely to reach 65 million mt, said Ikbal Nathani of the Nathani Group of Cos. (Mumbai), and the industry expects to reach 200 million mt by 2020. Although Indian demand for finished steel products weakened in June as international scrap prices rose, Nathani reported more active scrap buying there in October. Scrap imports will most likely not keep pace with production growth, though, because India is the world’s largest producer of sponge iron, which serves as a substitute for metal scrap, giving Indian steel mills greater scrap-buying flexibility, he pointed out.
In the United States, ferrous scrap prices “bottomed out” in October after dropping some $30 to $40 a gross ton early in the month, but prices have since rebounded and look set to climb even higher in November, said Blake Kelley of Sims Metal Management Global Trade Corp. (New York). Though plants are still operating at just 67.4 percent of capacity, Kelley anticipated that further strengthening would come on the back of “inadequate supply and low collection rates.” Globally, with potentially record steel production in 2010, the steel industry expects solid gains in both raw steel output (up 201 million mt) and purchased scrap (62 million mt higher) along with firming scrap prices, he said.
Ample supplies of finished steel products and “spotty” demand resulted in widespread market reductions in Europe during the early summer months of 2010, according to Tom Bird of Van Dalen Recycling (Sheffield, England). Though the market is still hard to call, and the timing of sales is “crucial,” Bird noted that heavier pre-Ramadan buying in Turkey and renewed buying interest in Spain have resulted in improved demand, thus the near-term outlook is relatively positive.
Russia saw a rebound in scrap collection in 2010, up to 21 million mt from 17 million mt in 2009, said Andrey Moiseenko of PG Mair (Moscow), but collection is still well below average levels from 2005 to 2007 as Russian scrap firms continue to recover from the financial crisis. Lately scrap demand and prices have improved as the Russian market has entered a period of relative stability, he said.
Hisatoshi Kojo of Metz Corp. (Tokyo) reported that, after the summer holidays, scrap prices in Japan were on the rise, with Tokyo Steel raising its buying prices three times in just over one week during late August. With a strengthening yen and weakening steel-mill demand in September, though, the domestic steel market in Japan entered a period of stagnation and scrap prices softened. Kojo expected a rebound in Japanese scrap prices, however, in part because steel mills in China, Taiwan, and South Korea need to replenish their depleted stocks.
Guest speaker Stefan Schilbe of HSBC Trinkaus (Düsseldorf, Germany) provided his outlook for the major economies in 2011. Continuing weakness in the U.S. housing market, as well as the country’s low inflation rates, ongoing high unemployment, and an expected drop-off in consumer spending led him to compare the U.S. economic situation to Japan’s “lost decade.” The European picture is mixed, Schilbe said, with a rebound in corporate investment and other positive indicators in Germany and potential fallout from the housing bubbles in Spain and Ireland. With the credit boom in China already cooling, and high levels of economic growth still likely, he also noted the sizeable upside potential to the yuan.
Nonferrous Markets Exceeding Expectations
2010 was the year metal demand rebounded, according to Robert Stein of Alter Trading Corp. (St. Louis), BIR Nonferrous Division president. Stein stressed that metal scrap is increasingly important for economic development and should trade as easily as primary metal, but it still faces far too many obstacles. Emphasizing that point, Robert Voss of Voss International (Harrow, England), chairman of BIR’s International Trade Council, reported on trade-barrier developments in East Africa, India, Russia, and elsewhere. Voss noted with concern the growing trend among consumers to try and prevent the export of raw materials. He reported that BIR is working with the World Trade Organization (Geneva) on such issues. Voss also reported on the range of issues the European Metal Trade and Recycling Federation (Brussels) is working on, including end-of-waste deliberations, REACH, the EU Waste Framework Directive, materials theft, and VAT concerns.
In many of the national and regional reports, Alejandro Jaramillo of Recicladora Cachanilla (Tijuana, Mexico) noted some recurring themes: concerns about the weakening U.S. dollar and the resulting less-competitive export prices from developing countries; high and rising LME base metal prices but widening scrap discounts; continuing cash flow and credit availability problems, especially for small and medium enterprises; and the impact of China’s recent pullback from import markets such as the copper scrap market. Jaramillo also pointed out the rapid appreciation of a range of currencies—including the Australian dollar, South African rand, Chinese yuan, and Indian rupee—and the challenges that can pose for merchants.
Turning to individual countries, Jaramillo said the ongoing housing market crisis remains a key concern in the United States against a background of largely positive recent economic indicators. He noted solid market conditions in Germany and the Nordic countries and tight scrap supplies in Russia, but choppier market conditions in Italy, France, and the United Kingdom. Though stronger auto demand appears to be boosting scrap and metal use in Latin America, Jaramillo said financing for working capital remains an issue in the region.
William Adams of BaseMetals.com (London) gave attendees an outlook for the major LME-traded metals that was both upbeat and cautious. Adams credited the “supercycle” for providing longer-term market strength driven by “secular growth in the rapidly developing economies and supported by slow but volume growth in the mature economies.” He cautioned that, though metals prices will be “considerably stronger” in the years ahead, “we feel current price levels are not justified, therefore there is considerable risk of downside corrections.”
Stainless Recovery Continues
Stainless steel output in 2010 should rebound even higher than expected, with global stainless production forecast to reach about 30 million mt, up from the previous forecast of about 27 million mt, reported Michael Wright of ELG Haniel Metals (Sheffield, England), chair of the BIR Stainless Steel & Special Alloys Committee. The 20-percent jump in annual stainless production stems from an especially strong start to the year, he said, with solid output in the first and second quarters offsetting the seasonal slowdown in the third quarter. The industry expects a (perhaps more modest) boost in fourth-quarter stainless production, Wright added.
Accompanying the jump in stainless production is increased global stainless steel scrap availability, Wright said, estimated to grow 20 percent in 2010, to 8.5 million mt. Other key market developments he cited included the limited role of China on the import front due to its abundance of scrap supplies and the ongoing competition from China’s domestic nickel pig iron industry. Wright also highlighted the increase in global demand for ferritic grades of stainless steel: Non-nickel-containing grades accounted for 44 percent of stainless output in 2010. With stainless sales largely on an “as-needed” basis and shifting patterns of investor interest and demand, Wright predicted continued nickel price volatility through the end of 2010. That volatility is largely the result of the nickel surcharge system, asserted guest speaker Martin Abbott, chief executive of the London Metal Exchange (London). Abbott gave an overview of the new LME contracts in steel billet, cobalt, and molybdenum, stressing the LME’s role in taming volatility.
Barry Hunter of Hunter Alloys (Boonton, N.J.) reported that rising prices, low levels of stainless scrap availability, and the “spotty” outlook for milled products were combining to make for difficult stainless scrap purchasing and inventory decisions in the United States. Though U.S. stainless mill demand has improved in 2010, Hunter said, demand for stainless scrap has been “sporadic,” with sustained demand for mill products still unproven. 2010 had largely been a stainless scrap seller’s market in the United States due to tight scrap availability, “aggressive” buying from wholesalers, and a brief appearance from European buyers in the summer, Hunter said. A key question for scrap market participants is how much inventory they can afford to buy and carry forward, he added, as the first quarter of 2011 could mirror the first quarter of 2010.
Improved aerospace demand is boosting demand for titanium products in the United States, said Phil Rosenberg of Keywell (Chicago), with 2010 domestic mill shipments expected to rise 25 percent to 35 percent. After two difficult years, titanium scrap demand also is improving, though price levels remain “reasonable,” he said. With decreased ferrous and ferritic stainless production, demand for secondary titanium is likely to remain weak through the end of 2010 and into 2011, Rosenberg said. In contrast, demand for nickel-based alloys has been healthy. With the end of the Vale strike in Canada expected to increase primary nickel output, the price spreads for scrap products could widen in the near future, he added.
Western European reports indicated mostly adequate to good stainless scrap availability (Italy being a notable exception), mills running at near-capacity levels, and, following the typical seasonal slowdown in the third quarter, healthy stainless steel output. In contrast to the UK, Scandinavia, and elsewhere, Italy’s scrap availability has been very poor, said Sandro Giuliani of Giuliani Metalli (Milan), resulting in higher stainless scrap prices there. Ildar Neverov of Steelway (Moscow) reported that Russian market participants have shifted their focus away from the export market and toward the domestic market amid rumors that authorities may be looking to increase restrictions on scrap exports there.
Ahmad Sharif of Sharif Metals (Amman, Jordan) reported a surge in demand for stainless scrap in the Middle East due to large new aircraft deals and infrastructure spending in the region. Indications from Asia were mixed, with India seeing strong demand from the stainless mills, high capacity utilization rates, and an influx of stainless imports while China remains largely absent from the stainless scrap import scene due to the previously reported abundance of scrap material there. Though stainless scrap demand is reportedly on the rise in both South Korea and Taiwan, Mark Sellier of OneSteel Recycling (Hong Kong) indicated that domestic suppliers are largely meeting South Korea’s scrap demand.
Recovered Paper Moving in Faster Cycles
Recovered paper demand and prices got off to a positive start in the third quarter of 2010, according to Ranjit Baxi of J&H Sales International (London), president of the BIR Paper Division, with higher OCC and mixed paper prices and stronger freight rates. Mill activity started showing signs of weakness in mid-August and early September, however, with buyers in key Asian markets looking increasingly to domestic suppliers to meet their needs, and recovered paper prices and freight rates began to falter. Baxi said he expects mill buyers in China to return to the market in October, but he also stressed that challenges—including the effect of winter weather on collection rates in the United States and Europe—would persist well into the fourth quarter. Price and demand movements within the quarter are indicative of the shorter cycles occurring in the recycled paper industry, Baxi asserted, noting that the market is witnessing both shorter and more pronounced ups and downs lately.
U.S. mills operating at high rates, strong demand from Asia, and lower U.S. collections are leading to higher-than-average OCC prices in the United States, said Michael Moulton of Koch Pulp and Paper Trading (Houston). Europe also is seeing good mill demand and weak recovered paper collection lately, said David Symmers of The Recycling Association (Daventry, England). Prices in Germany were reportedly firmer due to the impact of mill buying in Eastern Europe; collection rates in the Czech Republic were up (though domestic demand was basically unchanged); and domestic demand in Turkey was helping to offset slower export markets.
Merja Helander of Lassila & Tikanoja (Helsinki), president of the European Recovered Paper Association (Brussels), expressed ERPA’s commitment to work with the recovered paper industry in Europe on the European Union’s draft end-of-waste criteria for recovered paper, expected by the end of 2011.
Baxi predicted that Chinese imports of recovered fiber would drop to 24 million mt in 2010, down from 27.6 million mt in 2009 and 24.15 million mt in 2008. Europe in particular is providing less recovered fiber to China, Baxi said. He attributed falling shipment volumes from Germany, France, and Belgium to foreign exchange costs, growth in Asian collections, and quality concerns, among other things.
What causes movements in the recovered paper market? Bill Moore of Moore & Associates (Atlanta) named historical oversupply conditions, regional variations in prices, volatile freight rates, currency fluctuations, and seasonal factors as some of the traditional market drivers. With today’s increasingly globalized recovered paper market, new factors include higher recovery rates, the falling quality of the “last tons” of recovered paper, the expanding role of China, and the tighter availability of credit. Echoing Baxi’s assertion that recovered paper market cycles are becoming shorter, Moore noted that the industry seems to be “out of sync” with global economic growth, and he predicted that OCC prices could decline in the short term.
Expanding on one of those factors, Peter Hall of APL (London) said the shipping lines lost an estimated $20 billion in 2009, but 2010 was turning out to be a year of restored profitability and shipping capacity. He expected only moderate growth in containerized trade and “subdued” rates in 2011 as the shipping lines refocus on profitability and keep their rate of expansion below 10 percent in each of the next two years. Independent consultant Ilpo Ervasti (Finland) spoke further about China’s role in the market as the consumer of 30 percent of the world’s recovered paper.
Opportunities Abound for Plastics
Three factors are leading to “tremendous” opportunity in plastics recycling, said Surendra Borad of Gemini Corp. (Antwerp, Belgium): legal requirements to recycle, reduce waste or hazards, and reduce emissions; companies’ desire to improve their image through recycling; and the high prices of raw materials. The Reuters-Jeffries CRB commodity index has hit a two-year high, he noted, attributing the high prices to the low U.S. dollar, which is creating a “currency war” that’s hurting both China and India, he said.
Looking at Europe, Jacques Musa of Veolia Propreté France Recycling (La Plaine St. Denis, France) reported a strong prime market in France, despite price increases and material shortages for polyethylene and polypropylene. Prime prices have remained steady or slightly down since September, he said, and the closing of several European producer units will keep those prices high, he predicted. He called secondary prime plastics a “very dynamic market,” though he noted that the strong demand brings lower quality onto the market, which can depress prices. The granulated material market has seen similar developments, with the possibility of lower prices in the future.
Holland and Germany are seeing stable prices, reported Peter Daalder of Daly Plastics (Zutphen, Netherlands), with export prices down due to the weaker U.S. dollar. Daalder decried new container-scanning requirements at the ports in Rotterdam, Netherlands, and Antwerp, Belgium—which are causing additional costs, more handling, and shipping delays, he said—and European plastics producers’ efforts to ban the export of plastic scrap.
The industry “missed the boat” on the issue of biodegradable plastics, Daalder added. The question of their recyclability comes up every week, he said, but they’re designed to be composted, not recycled, thus when they appear in the waste stream they tend to get incinerated. Borad noted, however, that biodegradable plastics are a “small, insignificant” proportion of the recovered plastics market.
Reporting on China, Musa said the country imported 3.14 million mt of plastic “waste” from January to May 2010 and produced 5.8 million mt of prime PE from January to July of last year. Hurting the scrap plastic market are China’s development of domestic prime PE production as well as the recession, which reduced demand for exported goods in the United States by 40 percent and in Europe by 30 percent, he said. Add to that Chinese producers’ permit and licensing issues, energy-use restrictions, labor cost increases, and currency issues, and the 2010 market was weaker than expected in China, Musa said, though it might improve with more favorable conditions, leaving buyers in a “wait and see” mode.
Borad called the Indian market similarly indecisive, which has made forecasting all but impossible. Prime prices for LDPE, PS, PP, and PVC went up after the Chinese holidays in October, though demand has faded more recently, he said, describing Chinese demand as “low to normal” and Indian demand as “very low.” Still, he called the long-term prospects “very promising,” especially considering that Indian plastics consumption is still only 6 kg per person a year, far below the world average of 27 kg per person a year.
Guest speaker Dirk Segers of Marsh (Antwerp, Belgium) described the insurance tools available for reducing risk in international scrap transactions, specifically those involving oceangoing vessels. As the international trade in scrap grows, so do the complications, he said, such as national policies that confuse scrap and waste, greater documentation and licensing demands at the shipment’s origin and destination, and ever-changing laws and regulations. Raising the stakes even further is the increasing value and importance of some scrap commodities, he said. Even companies that have transport insurance through a shipper or freight forwarder can “keep full control” by establishing their own insurance programs, he said.
Standard insurance policies can apply on case-by-case basis or in an “open cover” contract, giving full protection for all shipments globally. Standard policies typically cover the physical loss or damage to cargo in transit as well as the risk of “general average” sacrifice, when the master of vessel willfully destroys the cargo to protect the vessel or other cargo. Another common category of coverage, Institute Cargo Clause C, protects against perils named in that clause (e.g., fire, capsizing, and collision), whereas “extended named perils” coverage can insure against things like theft, pilferage, and nondelivery, and ICC A, or “all-risk,” coverage is even more comprehensive. Many insurance policies refer to the risks enumerated in the 1986 iteration of the ICC, Segers said, but the Jan. 1, 2009, clause protects against additional risks, such as carrier insolvency. Scrap shipments can have additional risk exposures standard policies might not cover, he pointed out, such as spontaneous combustion; nondelivery/nonarrival; damage due to deficient packaging; cleanup and debris disposal associated with lost cargo; shortage from a container; fumigation; and radiation. Policy extensions can cover most of such exposures, he said.
Another guest speaker, Faisal Baig of Buhler Sortex (London), described how optical sorting equipment can increase the value of recovered plastics at several processing stages. Sorting can help a company sell recycled plastic as a brand, not a commodity; increase efficiency and productivity; and save money, he said. The technology can handle not just PET, HDPE, and PVC, but scrap from electronics, end-of-life vehicles, and more, he added.
European Tire Collection Strong
The scrap tire market continues to suffer due to the economic crisis, with the European truck tire replacement market down 30 percent in 2009, said Barend ten Bruggencate of Kennis Centrum (Leiden, Netherlands), citing statistics from the European Tyre and Rubber Manufacturers Association (Brussels). On a positive note, ETRMA reported that Europe recovered 96 percent of tires in 2009, making the continent the “world leader” in recycling that commodity. Ten Bruggencate spoke positively about scrap tire research and the funds available in Europe for further study of scrap tire applications. Asphalt rubber is the “best long-term solution for the mountains of granulate,” he asserted, but it requires more research. A new EU waste framework directive on end-of-life-tire-derived products could recognize granulated rubber as a secondary raw material or an alternative energy source, which would benefit the market, he added.
Some European countries, such as Belgium, still consider granulated tires waste, explained guest speaker Kees Wielenga of Ffact (Delft, Netherlands). Addressing crumb rubber in the EU’s end-of-waste framework could remove barriers to the use of this and other recycled materials, he said. Granulated tires are not on the EOW agenda yet, but Wielenga offered several options for what the industry might do to speed the process.
Joe Pickard is ISRI’s chief economist and director of commodities. Rachel H. Pollack is editor of Scrap.
PT Indah Kiat Serang Earns Papyrus Award
BIR president Dominique Maguin of La Compagnie des Matières Premières (Paris) and Paper Division President Ranjit Baxi of J&H Sales International (London) presented this fall’s Papyrus Award to the Asia Pulp and Paper Group subsidiary PT Indah Kiat Serang (Jakarta, Indonesia) for its efforts not only to increase recovered fiber consumption but also to promote sustainability at its mill in Serang, Indonesia. Accepting the award were Dewi Bramono, APP’s deputy director for sustainability and stakeholder engagement, and Susanna Agus, APP fiber procurement specialist.
Giving Global Attention to Radioactive Scrap
The growth of the international scrap trade—as well as more portal monitoring—are resulting in the discovery of more radioactive material in scrap, said Eric Reber, a radiation safety specialist with the International Atomic Energy Agency (Vienna). At BIR’s International Environment Council meeting, Reber described his agency’s work to reduce the hazards associated with radioactive scrap.
The IAEA is developing three tiers of safety standards on radioactive scrap: fundamentals, requirements, and guides. These documents are not binding for IAEA member states, he explained, but they can help influence the development of individual nations’ laws and policies. The guides, the most detailed of the three tiers, provide recommendations on how a country can structure its regulations to protect people and the environment. Acknowledging that “radiation is everywhere,” thus achieving a radiation level of zero is not feasible, the document sets out a conservative baseline amount of allowable radiation—“levels safe to eat,” Reber said. The guides hold governments responsible for applying safety requirements to industry, but they
advocate a flexible approach that works with local industry and culture. The guides give as an example the “Spanish protocol,” which relies on voluntary cooperation between government and industry, and they recommend a graduated approach that recognizes the difference in resources between large and small facilities.
The guides also set out a recommendation for the scrap industry’s role: to monitor scrap for radiation, plan how to respond to the discovery of a radiation source and remediate the situation, notify the proper authorities, prevent the improper transfer of radioactive scrap, arrange the proper transfer of contaminated material, and participate in investigations of incidents, among other things. Governments should develop policies that “encourage the industry to report the discovery of radioactive material,” Reber said. The guides do not make a recommendation about who should bear the costs of handling radioactive scrap, he noted, because that varies greatly from state to state. The draft guides were approved in October 2010, and the agency hopes to publish them this year.
The IAEA also is developing an international agreement on the transboundary movement of radioactive scrap. Right now there’s no “international legal instrument” that requires reporting, responding to, or monitoring scrap, nor is there any international certification of scrap monitoring or any monitoring of scrap in transit, Reber pointed out. After meeting in 2009 and 2010, nine countries developed a nonbinding agreement that addresses these issues. The document’s goal is to harmonize the approach of IAEA member states to radioactive scrap and define the roles of exporting states, importing states, and transshipment states as well as the IAEA’s own role.
With several months of strong demand and prices behind them, participants in BIR’s fall meeting in Brussels were moderately optimistic that economic growth is ahead, even if volatility remains a long-term feature of the scrap commodity markets.