January/February 1997
The consensus at the BIR’s fall meeting was that world markets for most scrap commodities largely fell short of expectations in 1996. And, with few exceptions, there were more clouds predicted for 1997.
By James E. Fowler
James E. Fowler is publisher and editorial director of Scrap.
The gray skies over Brussels set the tone for the Bureau of International Recycling’s (BIR) (Brussels) fall conference in late October.
Though the markets for many scrap commodities were generally fair in the first half of 1996, several factors—from slowing economies around the world to the infamous Sumitomo copper trading scandal—brought dark clouds into the picture in the second half.
And markets reports offered in Brussels were less than optimistic, with many international scrap executives expecting overcast conditions to continue in the months and new year ahead.
No Fair Weather for Ferrous
Optimism was certainly in short supply in reports offered at the ferrous division meeting.
In the U.S. market, for instance, ferrous scrap steadily fell “out of favor” as 1996 progressed, even though U.S. steelmakers posted high capacity utilization rates and strong shipments throughout the year, noted Edward Hollander of Hollander Metals (Glenview, Ill.).
What explains this decline? According to Hollander, some “fairly bullish statements” were made about ferrous scrap prices earlier in the year and, as a result, “many shippers were holding back inventory in early June and July to reap better prices during September.”
As it turned out, September prices were up only slightly in most parts of the United States, which prompted “a certain amount of panic selling by dealers,” he said. “When domestic mills realized there was so much scrap available, they stopped buying and found that their own inventories were quite healthy.”
The result was predictable, with mills deciding in October that they didn’t need much scrap and prices, consequently, falling “out of bed,” Hollander said, noting that this bearish market sentiment continued into November. [Of note, December prices for U.S. auto factory bundles rose $6.81 compared with November tags.]
While U.S. demand for cars, construction, appliances, and aircraft is expected to continue steady in the short term, the domestic steel and ferrous scrap markets have been hampered by increased imports of steel, diminished exports of finished U.S. steel goods, and stepped-up imports of higher-quality ferrous scrap and “particularly large” quantities of pig iron, Hollander said.
In the coming months, scrap processors will likely be the ones to “put a stop to the dropping market,” he said. “They will feel it is time to resist making sales, and when the mills see their inventories are dwindling, they will come into the market and pay higher prices.”
The market picture has been no less overcast for the Pacific Rim and Far Eastern steel and ferrous scrap industries. While these markets were largely “directionless” in the spring, they found a direction in the intervening months—and “unfortunately for us, it has been downward,” said John Crabb of Simsmetal Ltd. (Sydney, Australia), asserting that “we are seeing the worst market for many years.”
The main cause for the drop in Asian Pacific ferrous scrap prices was weakness in the Korean market for the first time in years, he said. A combination of high mill product inventory, overcapacity and overproduction in a softening market, steeper pig iron consumption, and the ready availability of scrap from Japan curtailed Korea’s purchases of scrap from other countries and depressed prices.
Fortunately, a steady drawdown of mill inventories, combined with current low ferrous scrap prices, has encouraged Korea to reenter the market, Crabb reported. This has been good news for international scrap traders, especially those in Europe.
In Japan, production cuts by Japanese steelmakers have helped build a reasonable market in recent months, though these cuts have also created a surplus of scrap, which has diminished Japan’s domestic scrap prices as well as its appetite for imported scrap, Crabb said.
In his reports on other Asian countries, Crabb noted that Taiwan’s market and industry “as a whole remain severely depressed,” adding that there is “no real activity” in Indonesia and the Philippines, Thailand’s momentum from 1995 and early 1996 “has ground to a halt,” and Malaysian mills are generally all well-stocked.
As for China—the so-called sleeping giant of the international scrap market—the country “continues to snore,” Crabb asserted, noting that most Chinese steel mills have little money, local high-quality cut grade scrap remains in strong supply, and the only interest is in an occasional cargo of shredded scrap. “A few startup operations could result in imports in 1997, but overall the prospects are not encouraging, and it does not look as if China alone will turn around this market,” he said.
Despite Asia’s cloudy state, there is one bright note—“ferrous stocks are generally low and a sudden pickup in regional steel production could see an immediate rebound in demand and prices,” Crabb said, adding that he did not expect this to happen in the short term.
The European market has also had its share of stormy weather, said Raymond George of S.A. George & Cie (Liege, Belgium), who noted that “things are not going well at all.”
The main problem for European processors is that “we can’t sell what we have but we can’t get scrap, so we are buying high and selling low,” he said, warning, “This mentality must change in the future. We should not compete so much. If we continue as we are, we will kill each other.”
Nonferrous Markets Struggle After Sumitomo
To no one’s surprise, reports on international nonferrous markets offered at the nonferrous division roundtable were predominantly bleak, with most referring to the catastrophic effects of the Sumitomo copper trading scandal on the performance of virtually all base metals.
That debacle “proved again that the complexity that surrounds futures markets is a danger to our business, and proved the apparent incapability of some futures exchanges to control those who trade their products, whether directly or indirectly,” said Robert A. Stein of Louis Padnos Iron & Metal Co. (Holland, Mich.).
The ripples from the Sumitomo crisis were certainly felt in the United States, where a positive first half of 1996 gave way to a “time of reckoning” in which “nonferrous scrap activity in North America suffered sharp declines in activity,” Stein reported.
Copper suffered the most, experiencing a “calamitous drop” in price, which had a strong negative effect on the markets for copper and brass scrap in North America, he said.
In the wake of the scandal, the continued strong performance of brass and copper tube mills has put pressure on supplies of certain scrap grades and prompted some mills to increase their use of copper cathodes as a substitute feed for such scrap. “Recent drawdowns of copper inventories in Comex warehouses address the shortage of copper and brass scrap in North America,” Stein said.
Brass and bronze ingot makers have also seen steady business for some of their alloys, though they report some sharp discounting, especially for those grades that mirror the relative health of the general economy, he said. For ingot makers—in contrast to brass and copper tube mills—“there seems to be an adequate supply of scrap feed at processors’ yards and at consumers’ works to satisfy demand.”
Turning to the aluminum market, Stein noted that “demand for primary grades of scrap is strong, but the regular supply cycle has been disrupted in the face of overall lower values for metal. Lacking price inducement, many dealers have chosen to inventory materials with hopes of better prices in the first quarter of 1997, selling only those quantities necessary to generate cash flow.”
This hoarding, combined with diminished supplies of scrap flowing into processing plants, has brought about scrap prices that are “relatively high in relation to terminal market values,” he said.
As for lead, available supplies of battery scrap have exceeded current secondary lead smelting capacity and, as a result, prices have dipped near historically low levels, Stein said. Fortunately, he continued, “new lower-cost smelting capacity due to come on-stream in the next six months should help to alleviate this situation.”
Zinc scrap markets in North America, meanwhile, have been generally lackluster. “With no strong consumer support, scrap values have been trending lower in recent months, despite relatively high premiums for slab zinc in the United States,” Stein noted. In the face of low consumer interest, overall price stagnation in all nonferrous markets, and diminished exports to India and Taiwan, “little improvement is foreseen for zinc scrap,” he said.
Summing up the North American market picture, Stein said that if there is any improvement in market conditions, it will be “early in the first quarter, it will be short-lived, and we will return to conditions that we are experiencing now. The best, I believe, is behind us for quite some time.”
The market story was similar for Pacific Rim and Far Eastern nonferrous scrap markets, with John Crabb remarking, “There has been little to excite the nonferrous trader in terms of activity, prices, and demand.”
In the copper market, “there has been reasonable demand, but tight supply and low prices have had an adverse effect on trading volumes throughout the region,” he noted.
For its part, the aluminum scrap market in Asia has been defined by “weak prices, sluggish demand, and relatively high inventories,” largely because the anticipated pickup in demand following the northern summer failed to materialize, he observed. Though demand for extrusion scrap remains reasonable in southern China, prices are weak as consumers prefer to buy inexpensive Russian ingot. Prices of secondary aluminum ingot have also generally remained at low levels, though they haven’t declined as far as aluminum tags.
Lead, meanwhile, has been one of the brighter base metals in the Asian market and “with the automotive battery season approaching, both demand and prices should improve,” Crabb said. Scrap lead and spent batteries, however, remain under the Basel Convention spotlight “despite the freeing up of some interregional trade in Southeast Asia.”
What all this meant as 1996 wound down was that there are “not too many bright lights from the Asia Pacific region where growth rates, although still at an enviable level, have slowed somewhat,” Crabb said, expressing confidence that “there will be opportunities when the global economy improves.”
Slower Times for Nickel And Stainless Steel
Even the juggernaut that is the world stainless steel market decelerated in 1996, as some economies around the world slowed and stainless producers found themselves in the position of having to work down inventories.
While U.S. stainless steel producers have been hurt by low-priced imports, shipments by the three major U.S. stainless mills were up 14,000 tons through the first half of 1996 compared with the record level in the same period of 1995, reported Stainless Steel & Special Alloys Committee Chairman Barry Hunter of Keywell L.L.C. (Elizabeth, N.J.).
This effort to maintain market share, however, oppressed the mills’ financial performance, with third-quarter results expected to be greatly reduced and the fourth quarter shaping up to be down or flat, Hunter said.
Interestingly, the import situation faced by U.S. mills held the potential to eventually improve business conditions. “European price increases placed during the summer appear to be holding, with further increases already announced,” he explained. “This situation will most likely reduce European production, allowing for more destocking, but should allow American production to be more competitive, resulting in increased production and profits.”
Though the U.S. stainless scrap market was expected to be flat for the balance of 1996, European price increases, if successful, could lower production, stimulate demand, and, coupled with a healthier U.S. economy, bring about a “significant improvement in the conditions going forward in 1997,” Hunter stated.
The news was generally much more upbeat for the U.S. nickel alloy scrap market, with demand for most materials—except molybdenum and high-carbon ferrochrome—being defined by steady-to-high demand and solid prices, according to Sidney Greenberger of National Nickel Alloy Corp. (Pittsburgh).
Much of this market strength can be attributed to the aerospace industry, which has emerged from its years-long financial drought to become healthy and profitable again, he said. In fact, “mills have few, if any, open melting slots for 1997 and are currently taking orders for 1998,” Greenberger stated, noting that this has meant good demand and keen competition for Inco 718, 625, 901, X750, and Waspalloy.
Similarly, the titanium business “is great, and it appears that it will continue to be for the next several years,” thanks to aerospace demand and growing use of titanium in products such as golf clubs.
Encouraged by these market fundamentals, “most U.S. dealers are optimistic that 1997 will be a good year for the scrap industry,” Greenberger said, adding, “nickel-bearing scrap is still the material of first choice for the stainless mills.”
Offering an update on the primary nickel market, Olle Johansson of Falconbridge Europe S.A. (Brussels) noted that Western World production of primary nickel is expected to increase 10 percent in 1996 and 3 percent each year for 1997 and 1998.
On the demand side, nickel consumption is expected to ease 0.6 percent compared with the record 1995 level of 905,000 mt.
Offering some forecasts based on a range of growth scenarios, Johansson projected that, assuming zero growth from 1996 to 1998, nickel inventories could drop to 120,000 mt and nickel prices could range between $3.50 to $3.75 per pound.
Under a more positive scenario of 2 to 3 percent growth in 1997 and 1998, LME stocks would dwindle significantly, tightening the nickel supply, pushing prices up, and stimulating collections of stainless steel scrap, Johansson said, concluding that “the scene is set for healthy growth in 1997 and 1998, and thus substantially higher nickel prices than we have today.”
Paper Plods Along
The paper and packaging sectors have perhaps faced some of the darkest market skies in recent years, as the unprecedented demand and price highs of 1995 tumbled precipitously to the lower levels seen throughout 1996.
In the United States, paper producers and processors continued to be plagued by oversupply and weak market conditions in the second half of 1996, said Steve Vento of William Goodman & Sons Inc. (Sunrise, Fla.) at the paper division roundtable. As the end of the year approached, he noted, industry shipments were behind 1995’s pace and there were signs of a continuing downturn in demand for recovered paper. Earlier optimism for a fourth-quarter revival of demand was replaced by the expectation that markets would continue to be sluggish for the remainder of the year. And as if that weren’t enough, Vento asserted, “there does not appear to be any indication of an upturn in the market even into the first quarter of 1997.”
In the export market, steady purchases by mills in Canada and Mexico were offset by a significant decrease in buying from consumers in the Far East, Pacific Rim, and Europe, Vento said, noting that, “even though ocean freight rates are now more favorable than over the last year and a half, this has not stimulated any increased buying.” And unless domestic scrap paper prices drop dramatically, he continued, overseas mills are not expected to reenter the market in order “just to build up inventories without an improvement in their production.”
Creating a Safe (Recycling) Environment
In addition to world commodity market concerns, environment-related issues continued to present other stormclouds on the horizon for recyclers.
One such threat is the Basel Convention’s ban on the movement of “hazardous wastes” from developed to developing nations as of Jan. 1, 1998. “Any of our raw materials or products that remain in the hazardous category of the Basel classification will be subject to a total ban on international movement,” noted Environment Committee Chairman Patrick Neenan of AMG Resources Ltd. (Birmingham, England).
In response to this proposed ban, the BIR has retained a university professor to “provide authoritative evidence to support the contention that the vast majority of the materials being handled by the industry should not be considered hazardous and therefore should be excluded from the Basel Convention ban,” he noted.
In the United Kingdom, the BIR continues to support the British Metals Federation in its challenge of the British government’s interpretation of the European Union definition of waste to include scrap materials.
Adding a government representative’s view to the proceedings, Ed Gallagher, chief executive of the United Kingdom’s new Environment Agency, said he looked forward to the day “when all materials are not called waste, but are classified according to their potential usefulness and degree of hazard they present to the environment.”
Offering some advice to recyclers, he suggested that it would be good for the scrap industry’s image to have some form of accreditation to establish a clear track record and evidence of compliance with sensible regulations.
And the industry’s physical image could also be improved if more operations were conducted under cover rather than in the open, he said, though he conceded that all recyclers may not be able to afford such a significant change to their operations.
Recyclers could also benefit by ensuring that their vehicles look as if they’re transporting valuable raw materials rather than waste. The problem, Gallagher said, is related to incoming material rather than outgoing loads. “This is where I think you get into most trouble with your demand that things should be treated as secondary materials rather than waste,” he said.
His hope, he concluded, is that the world will see “a rather different recycling business—a better one, a more pervasive one, a more profitable one, and one that will not cheat on its children.”
Delving Into Dezincing
Pieter Van Rij of Hoogovens Scrap Processing BV (IJmuiden, Netherlands) discussed the dezincing of steel scrap at the ferrous division roundtable. Though it’s generally not necessary to dezinc steel scrap, the process can be attractive under special circumstances, he said. For instance, automakers may wish to pay to have their galvanized scrap dezinced to prepare it for consumption by foundries. Also, more Western European steelmakers are turning to electric-arc furnaces, expanding the need for high-quality, low-residual scrap such as dezinced material, Van Rij said.
To meet these and other needs, Hoogovens and Compagnie Francaise des Ferrailles (Paris) formed a joint pilot dezincing operation named Compagnie Europeene de Dezingage that has a target throughput of 10 mt per hour, or 50,000 mt annually. Thus far, the operation has received strong support from European automobile manufacturers, particularly in France, Van Rij said, adding that the operation’s production is sold out through 1997. “Dezincing of steel scrap is a complicated proj-ect to start up, but we are producing and we see a lot of possibilities for the future,” he stated.•
The consensus at the BIR’s fall meeting was that world markets for most scrap commodities largely fell short of expectations in 1996. And, with few exceptions, there were more clouds predicted for 1997.