Shooting
for Answers
Faced
with a sluggish U.S. economy and worldwide turbulence, 10 commodities
experts speculate where scrap markets are headed in 1991.
Adding
to the confusion in the marketplace, most published reports seemed to be
highlighting only negative news and made comparisons to the 1981-1982
recession. Last fall, as this was being compiled, it became increasingly
difficult to find upbeat reports. The Conference Board, for example,
reported that consumer confidence was at an eight-year low. The boards
Consumer Confidence Index fell 24 points in October, the biggest one-month
drop since the indexs inception more than two decades ago. Since
consumer spending accounts for about two-thirds of the nations gross
domestic product (GDP), many wondered what lower consumer spending
portends for the metal and paper industries in 1991.
Reports
of the United States economy heading for a recession are, of course, not
new. In fact, since 1982 many economic downturns have been wrongly
predicted despite brief periods of weakness in 1984, 1986, 1989,
and--according to most economists--1990. In these cases, the economy
quickly bounced back. Currently, some believe that the United States has
stayed sluggish since the fourth quarter of 1989, needing only a slight
push to fall into a classic recession (defined as two consecutive
quarters of real GDP contraction).
Some
economists and industry leaders believe that the catalyst for a recession
could be Iraqs invasion of Kuwait and the resultant negative effects of
higher energy prices. Will this event be enough to bring an end to eight
years of economic growth? Will the recycling industries escape weakness in
the domestic economy, or will they experience many of the negative
predictions offered for 1991? ISRIs member-experts offer the following
insights about how the new year might shape up.
Robert
J. Garino, director of commodities for the Institute of Scrap Recycling
Industries (Washington, D.C.)
Aluminum
By
Richard Mandel
Richard
Mandel is president of Mandel Metals Inc. (Chicago) and cochairman of the
aluminum subcommittee of ISRIs nonferrous committee.
The
outlook for aluminum is as uncertain as the political and economic
situation throughout the world. Looming worldwide recession, U.S.
government paralysis, and the threat of war in the Middle East are giving
everyone a case of the jitters.
If
these conditions continue to overhang the market, aluminum scrap prices
will probably deteriorate from current levels.
Fears
of a worldwide economic slowdown have caused major aluminum scrap
consumers to be cautious buyers. These consumers have no incentive to
build scrap inventories. With the sales of their end products declining,
scrap consumers are more concerned about getting caught with high-priced
inventory than trying to buy what they might perceive as material at a
bargain price.
Also
contributing to the softening aluminum market is the continued record rate
of production by the worlds aluminum producers. No producer seems
willing to slow its production, and, if the world economic slowdown is
protracted, a surplus of aluminum products will soon develop. This will
filter down to help depress aluminum scrap prices.
Of
course, other factors could offset these gloomy predictions. Currently,
the supply/demand ratio for scrap has been in balance. Therefore, any
perceived economic upturn or supply disruption could quickly revive scrap
values.
The
higher prices for oil could influence aluminum producers to save energy
costs by melting a larger proportion of scrap aluminum, thus preventing
scrap inventories from growing and overhanging the market.
Finally,
the expansion and liberalization of foreign markets (including Germany,
the Soviet Union, and China) could have a positive influence on aluminum
consumption. Of course, these economies are still adjusting to quickly
changing political climates and their effect on aluminum prices is still
hypothetical.
In
summary, 1991 should be an interesting year for the aluminum business.
With all the factors that seem to affect the market, we will probably see
the same type of price volatility that has characterized the market for
the past few years.
Aluminum
By
Bill Monaghan
Bill
Monaghan is a buyer for Wabash Alloys (Cleveland) and cochairman of the
aluminum subcommittee of ISRIs nonferrous committee.
Aluminum
took a very bumpy ride in 1990, with secondary A380.1 ingot selling for 66
to 68 cents per pound in January and rising to 78 to 80 cents per pound in
late March. It continued its up-and-down ride through the end of the year.
Price swings on the London Metal Exchange (LME) went from a low of 62
cents per pound in late January to a high or $1.02 per pound in
mid-September.
The
automotive and housing industries had their fair share of impact on the
aluminum industry. Secondary producers sell 60 to 65 percent of their
production to automotive companies and their related industries. During
1990, the automotive industry continued its downward spiral that had
started in late 1989. Housing starts, which are also a bellwether for the
aluminum industry, continued to decline each month throughout the year.
The
Persian Gulf crisis is another factor affecting the aluminum industry,
causing a surge in LME tags. The uncertainty in the Middle East also had
had its effect on oil prices, causing great concern about the economy as a
whole and the automotive industry in particular. Many economists are
predicting that sales of domestically produced vehicles will fall from
12.3 million in 1990 to 11.3 million in 1991. Should this happen, great
distress will be felt in the U.S. economy and, therefore, the aluminum
market.
Primary
producers continue to produce at close to 100-percent capacity even though
the economy shows no signs of strength through the first quarter. Primary
and secondary producers will continue to look to Europe and the Far East
to offset the loss of business in the United States.
Demand
for aluminum should increase in 1991 by 2 to 4 percent. The increased use
of aluminum in automotive engine blocks, hoods, and other automotive
parts, as well as a strong European can-sheet market, will add to the
increase. The secondary market will continue to be sluggish in the first
quarter due to its heavy dependence on the automotive market. The primary
market should be constant, with production equaling demand.
Copper
By
Daniel C. Gascoyne
Daniel
C. Gascoyne is vice president of Frank H. Nott Inc. (Richmond, Va.) and
cochairman of the copper subcommittee of ISRIs nonferrous committee.
As
of this writing in late October, the price of copper on the Commodity
Exchange Inc. (COMEX) has been moving downward for two weeks, with all the
indicators pointing to further decline. Other weakness is evident as well:
Stocks of copper in London are double the levels of a year ago. Car sales
were good last month, but only because of a push to move 1990 models.
Housing starts are down and are moving lower each month. The copper tube
mills are having tough times with their sales. Brass mills are not buying
scrap with any enthusiasm. Cathode premiums are small. Ingotmakers are
doing well, but the feeling is that their business can fall through the
floorboards at any time. European business is good. Both domestic and
foreign refineries are at capacity. Demand for brass in India has dropped
off. Taiwan business for lower grades of labor-intensive material has
fallen. Sound bad?
It
may not be. My prediction is for current levels to stay firm for 1991.
There will be dips because of technical adjustments and movements to fill
gaps in COMEX trading, but overall I think things will be OK for the
following reasons:
The
crisis in the Persian Gulf has negative implications worldwide. Every
country has made forecasts and budgets based on oil at $20 to $25 per
barrel. Whether there is war or peace, the price of oil is going up,
creating worries that higher-than-anticipated energy costs can cause
less-than-anticipated growth, particularly for the new, growing Europe or
oil-dependent Japan. But there is still a lot of money out there, and
emerging nations want what they see. So, I predict that things will cost
more, but people will still continue to buy.
I
think the United States has been in a recession for more than a year, but
only select segments of the economy have felt it. As new segments move
into the recession, others should start to roll out and new segments
should start to develop. One new segment? Recycling. Not necessarily scrap
plants, but new recycling ventures, particularly municipal programs.
When
the price of copper drops to an unacceptable level, Zaire, Chile, and
other copper-producing countries always seem to experience a disruption in
supply that brings the price up. Not that these producers do anything on
purpose, but the supply side is the most important side. In the past, some
countries have overproduced in glut times to generate money for their
economies, so why not hold back in thin times? It makes good economic
sense to control what you can to ensure a favorable price.
Never
underestimate the power of the speculator, especially considering the
computer-controlled movement of large amounts of money through various
markets--including financial, commodity, stock, currency, and options.
With the small copper stocks in the COMEX warehouses, its possible to
see some manipulation.
Watch
the dollar. It always seems that the dollar and copper move opposite each
other.
Copper
By
Bill Rickher
Bill
Rickher is manager of metal purchasing for Cerro Copper Products Co. (Sauget,
Ill.) and cochairman of the copper subcommittee of ISRIs nonferrous
committee.
What
does 1991 look like? The general consensus at Cerro indicates that we
should be prepared for a lean year. Despite the sluggish economy, however,
our objective is to operate both of our plants at capacity.
In
addition, Cerro will continue with its $50-million plant expansion and
other improvement programs. We view these investments positively and
intend to devote our full attention in 1991 to our plant expansion in
Shelbina, Mo., and production improvements at our Sauget, Ill., facility.
The additional press and tube reducers in Shelbina will significantly
increase our capacity in both plants. This will allow us to be positioned
well during the recession and be advantageously situated when the economy
improves.
Cerro
will not need to buy more scrap to feed this plant expansion, which is
exclusively devoted to industrial tube production. This means that more of
our cathode production will be dedicated to internal demand instead of the
cathode market.
Will
scrap be hard to buy in 1991? I enjoy a challenge and have fun matching
wits with out competition, but I take my job seriously. Cerro will never
lay off people because it cant buy enough scrap.
It
is anybodys guess what the price of copper will do in 1991. I usually
dont try to predict the market, but I would expect copper to trade in a
range of 50 cents to $1.50 per pound. Is that close enough?
Iron
and Steel
By
Albert Cozzi
Albert
Cozzi is president of Cozzi Iron & Metal Inc. (Chicago) and chairman
of ISRIs ferrous committee.
Forecasting
commodity markets is relatively easy as long as the forecaster is allowed
to change the prediction frequently and remembers to predict either what
will happen or when it will happen. Predicting both variables
simultaneously invites folly or, worse, accountability.
Before
embarking on my prediction, lets briefly review the fundamentals
underlying the world steel economy as we head into 1991:
The
American Iron and Steel Institute has predicted that world demand for
steel will drop 1 percent during 1991 compared with 1990 levels, but will
rebound 4 percent in 1992.
The
dollar has been weak compared with the yen and other Western currencies.
Eastern
Bloc countries are converting to consumer-driven economies at an
escalating rate and are using raw material resources, including scrap, to
finance redevelopment.
Electric
furnaces and continuous casting continue to dominate steelmaking. At least
two additional casters will be commissioned in 1991 in the United States.
U.S.
automotive manufacturers are predicting that 1991 sales will be flat or
down slightly from 1990 levels.
The
current Middle East situation has hampered exports to the Far East.
Keeping
these fundamentals in mind, I believe that the 1991 scrap market will
follow a path virtually the same as the 1990 market. Sagging demand in the
U.S. industrial sector will negatively affect demand for steel and,
therefore, scrap. However, the rebuilding of the Eastern European
infrastructure will keep imports to a minimum, shoring up lagging domestic
demand. Furthermore, the weak dollar will permit a modest amount of steel
exports.
The
weak dollar will favor electric furnace operations, which make products
geared toward infrastructure capital projects, both foreign and domestic.
This, coupled with continued funding for the U.S. highway program, should
mean relatively good volumes for electric furnace producers and scrap
processors producing electric grades.
Integrated
producers, on the other hand, will face poor sales stemming from the
lackluster automotive industry. Lagging demand from the integrated section
will temper scrap prices during 1991.
Export
demand is the wildcard in my 1991 forecast. The current Middle East
situation has hampered scrap exports and will continue to do so until a
resolution is reached. It should be noted, however, that a significant
amount of export demand has been satisfied by Eastern Bloc sources. This
phenomenon is likely to continue in 1991.
In
summary, I project that the first quarter of 1991 will see the best
pricing of the year, followed by declines in the second and third
quarters, and a modest recovery in the fourth quarter.
I
reserve the right to change this forecast without notice and recommend
that the reader use this information at his or her own risk.
Lead
By
Louis J. Magdits
Louis
J. Magdits is manager of raw materials for Exide Corp. (Reading, Pa.) and
cochairman of the lead/zinc subcommittee of ISRIs nonferrous committee.
Lead
at 65 cents a pound!
Traditionally
sluggish price moves, the lead-producer prices reached an all-time high in
mid-March 1990. For the second year, producer list prices did not
accurately reflect the state of the lead market. Despite the significant
price rise, primary producers continued to sell metal to large-volume
customers on an LME basis, which resulted in a significant discount to
list price. Secondary producers, despite supplying approximately 65
percent of the metal produced, continued to sell at discounts to even
their own posted prices. The lead market could not sustain its historic
level for more than a few weeks, and the price declines were as abrupt as
the rise. By the third quarter, producer prices returned to the January
level of 40 to 43 cents a pound.
Unfortunately,
scrap processors did not experience record prices for lead-based material
due to the availability of scrap and the disparity between producer list
prices and actual transacted prices. Scrap processors handling spent
lead-acid batteries had difficulty selling material for more than 10 to 11
cents a pound. In contrast, the last time lead broke the 60-cent level,
spent batteries brought 17 to 19 cents a pound. During the third quarter,
many scrap dealers reported significant delays in pickups because of
excessive smelter inventories.
Eighteen
states have enacted legislation requiring retailers of batteries to accept
a spent unit in return for a new battery. In addition, several
manufacturers and retailers initiated buyback programs at the national
level. In 1990, the combination of the two resulted in a record year for
the collection of spent batteries. Several major secondary facilities due
on-stream in 1991 will likely absorb this temporary glut of spent
batteries.
Several
legislative initiatives that affect the lead industry were introduced in
1990. The lead bill sponsored by Sens. Harry Reid (D-Nev.) and Joe
Lieberman (D-Conn.) could restrict or eliminate the uses of lead and the
subsequent processing of lead-bearing scrap. The Environmental Protection
Agency, through its Lead Pollution Prevention Plan, is pursuing a strategy
of internalizing the cost of spent battery collection/recycling within the
battery manufacturing industry. It is not clear what effects this plan may
have on the future of scrap metal dealers handling batteries.
As
in the fourth quarter of 1990, the lead market in the first quarter of
1991 will be dictated by the health of the battery industry. With the
economy moving from a soft landing to recession, we should expect
lead prices to further decrease.
Nickel/Stainless
Steel
By
Arnold I. Plant
Arnold
I. Plant is senior vice president of Samuel G. Keywell Co., Plant Division
(Baltimore), and chairman of ISRIs stainless & alloys committee.
As I reread the comments made for 1990 on the outlook for stainless
steel and alloy scrap, after attending the Nickel/Stainless Steel
Roundtable in October, and after reading the New York Times religiously, I
can only state that there are many mixed and different views of 1991.
It is easy to find justification for any of the various scenarios
from good to lousy business for the upcoming year. The consensus of the
roundtable speakers and of those in and out of our industry seems to be
that the upcoming year will go from not very good in the first quarter to
average at midyear to pretty good for the third and fourth quarters. There
are probably more variables in this years projections than for any year
of the past decade, with the federal budget, Persian Gulf, Eastern Europe,
and many other factors having a bearing on the economic viability of the
future.
Our world is moving so very fast these days that it seems to be a
microcosm of time, and changes take place constantly rather than weekly as
they did in the 1970s and 1980s.
It is imperative for stainless and alloy scrap dealers to watch the
buying prices and all other expenses of their operations. I believe that
1991 could be a very tough year for our industry and one in which profits
can only be made through attention to all factors of our business. I
suggest that all expenses and purchasing be watched very closely during
the new year.
Paper
By
William A. Nielsen
William
A. Nielsen is president of Nielsen & Nielsen Inc. (Pomona, Calif.) and
president of ISRIs National Paper Stock Institute Chapter.
The secondary fiber market is in a state of depression. Low grades
and deinking grades of scrap paper have been in tremendous oversupply and
likely will continue as such for the next year or two. Meanwhile,
mandatory collection programs continue to generate massive quantities of
old newspapers, mixed office paper, and white and colored ledger.
We likely will see temporary upswings in the marketplace, but
little enthusiasm about the long-term outlook--until more paper mills
increase their use of secondary fibers. The printing and writing paper
mills are still deciding what percentage of secondary fiber they will use,
which will tie in with federal and state government mandates.
There is greater use of deinking grades in Europe and Asia than in
North America. Nevertheless, as new technology enters the marketplace,
more domestic mills will consume these grades. The outlook for deinking
grades of secondary fiber on a long-term basis, therefore, is good.
However, with the probable increase of mandatory collection, the quality
of these grades must be watched carefully.
The outlook for pulp substitutes is a bit better, but the severe
depression on the virgin pulp market has had a substantial effect on the
value of these grades. There is, however, enough consumption for these
grades to keep supply and demand in balance on a long-term basis. Since
approximately 97 percent of pulp substitute grades are already being
recycled, we should not see mandatory collection have any effect on this
category.
The next year in our industry will be a challenge as more and more
paper stock companies experience acquisition and the industry is further
consolidated.
I estimate that in three to four years there could be shortages in
many grades of scrap paper, but until additional worldwide consuming
capacity is created, we must work through these periods of challenge.
Zinc
By
David S. Aronow
David
S. Aronow is vice president of Arco Alloys Corp. (Detroit) and cochairman
of the lead/zinc subcommittee of ISRIs nonferrous committee.
The zinc industry enjoyed another profitable year as volumes and
prices were at fairly high levels throughout most of 1990. After a quiet
first quarter, the market strengthened and maintained price levels between
75 and 90 cents per pound from April through September. This was not only
due to a strong demand but also to producer production problems, tightness
of zinc concentrates, labor strikes at mines and smelters throughout the
free world, and the possibility of a military confrontation in the Persian
Gulf.
Economists are predicting a downturn for the U.S. economy for at
least the first half of 1991. The demand for zinc in the United States
should weaken as the galvanizers and die casters slow down because of
softness in the automobile and construction industries. Zinc prices are
expected to range between 50 and 70 cents per pound throughout next year.
However, unforeseen events such as a reduction in interest rates,
lower oil prices, or a weaker U.S. dollar could have a positive impact on
the economy. A prolonged war in the Middle East could cause the price of
all metals to skyrocket. Factors such as the unification of Germany and
the opening up of Eastern European markets to the West could have a
beneficial effect on the U.S. economy.
It must be noted that all but one of the North American producers
no longer publish a list price for zinc. They are now using an LME-based
pricing formula, with premiums over the LME price to establish a daily
spot price. In 1991, the LME is scheduled to open warehouses in the United
States, which may result in smaller premiums being charged above the LME
price.
Shooting
for Answers
Faced
with a sluggish U.S. economy and worldwide turbulence, 10 commodities
experts speculate where scrap markets are headed in 1991.
Adding
to the confusion in the marketplace, most published reports seemed to be
highlighting only negative news and made comparisons to the 1981-1982
recession. Last fall, as this was being compiled, it became increasingly
difficult to find upbeat reports. The Conference Board, for example,
reported that consumer confidence was at an eight-year low. The boards
Consumer Confidence Index fell 24 points in October, the biggest one-month
drop since the indexs inception more than two decades ago. Since
consumer spending accounts for about two-thirds of the nations gross
domestic product (GDP), many wondered what lower consumer spending
portends for the metal and paper industries in 1991.
Reports
of the United States economy heading for a recession are, of course, not
new. In fact, since 1982 many economic downturns have been wrongly
predicted despite brief periods of weakness in 1984, 1986, 1989,
and--according to most economists--1990. In these cases, the economy
quickly bounced back. Currently, some believe that the United States has
stayed sluggish since the fourth quarter of 1989, needing only a slight
push to fall into a classic recession (defined as two consecutive
quarters of real GDP contraction).
Some
economists and industry leaders believe that the catalyst for a recession
could be Iraqs invasion of Kuwait and the resultant negative effects of
higher energy prices. Will this event be enough to bring an end to eight
years of economic growth? Will the recycling industries escape weakness in
the domestic economy, or will they experience many of the negative
predictions offered for 1991? ISRIs member-experts offer the following
insights about how the new year might shape up.
Robert
J. Garino, director of commodities for the Institute of Scrap Recycling
Industries (Washington, D.C.)
Aluminum
By
Richard Mandel
Richard
Mandel is president of Mandel Metals Inc. (Chicago) and cochairman of the
aluminum subcommittee of ISRIs nonferrous committee.
The
outlook for aluminum is as uncertain as the political and economic
situation throughout the world. Looming worldwide recession, U.S.
government paralysis, and the threat of war in the Middle East are giving
everyone a case of the jitters.
If
these conditions continue to overhang the market, aluminum scrap prices
will probably deteriorate from current levels.
Fears
of a worldwide economic slowdown have caused major aluminum scrap
consumers to be cautious buyers. These consumers have no incentive to
build scrap inventories. With the sales of their end products declining,
scrap consumers are more concerned about getting caught with high-priced
inventory than trying to buy what they might perceive as material at a
bargain price.
Also
contributing to the softening aluminum market is the continued record rate
of production by the worlds aluminum producers. No producer seems
willing to slow its production, and, if the world economic slowdown is
protracted, a surplus of aluminum products will soon develop. This will
filter down to help depress aluminum scrap prices.
Of
course, other factors could offset these gloomy predictions. Currently,
the supply/demand ratio for scrap has been in balance. Therefore, any
perceived economic upturn or supply disruption could quickly revive scrap
values.
The
higher prices for oil could influence aluminum producers to save energy
costs by melting a larger proportion of scrap aluminum, thus preventing
scrap inventories from growing and overhanging the market.
Finally,
the expansion and liberalization of foreign markets (including Germany,
the Soviet Union, and China) could have a positive influence on aluminum
consumption. Of course, these economies are still adjusting to quickly
changing political climates and their effect on aluminum prices is still
hypothetical.
In
summary, 1991 should be an interesting year for the aluminum business.
With all the factors that seem to affect the market, we will probably see
the same type of price volatility that has characterized the market for
the past few years.
Aluminum
By
Bill Monaghan
Bill
Monaghan is a buyer for Wabash Alloys (Cleveland) and cochairman of the
aluminum subcommittee of ISRIs nonferrous committee.
Aluminum
took a very bumpy ride in 1990, with secondary A380.1 ingot selling for 66
to 68 cents per pound in January and rising to 78 to 80 cents per pound in
late March. It continued its up-and-down ride through the end of the year.
Price swings on the London Metal Exchange (LME) went from a low of 62
cents per pound in late January to a high or $1.02 per pound in
mid-September.
The
automotive and housing industries had their fair share of impact on the
aluminum industry. Secondary producers sell 60 to 65 percent of their
production to automotive companies and their related industries. During
1990, the automotive industry continued its downward spiral that had
started in late 1989. Housing starts, which are also a bellwether for the
aluminum industry, continued to decline each month throughout the year.
The
Persian Gulf crisis is another factor affecting the aluminum industry,
causing a surge in LME tags. The uncertainty in the Middle East also had
had its effect on oil prices, causing great concern about the economy as a
whole and the automotive industry in particular. Many economists are
predicting that sales of domestically produced vehicles will fall from
12.3 million in 1990 to 11.3 million in 1991. Should this happen, great
distress will be felt in the U.S. economy and, therefore, the aluminum
market.
Primary
producers continue to produce at close to 100-percent capacity even though
the economy shows no signs of strength through the first quarter. Primary
and secondary producers will continue to look to Europe and the Far East
to offset the loss of business in the United States.
Demand
for aluminum should increase in 1991 by 2 to 4 percent. The increased use
of aluminum in automotive engine blocks, hoods, and other automotive
parts, as well as a strong European can-sheet market, will add to the
increase. The secondary market will continue to be sluggish in the first
quarter due to its heavy dependence on the automotive market. The primary
market should be constant, with production equaling demand.
Copper
By
Daniel C. Gascoyne
Daniel
C. Gascoyne is vice president of Frank H. Nott Inc. (Richmond, Va.) and
cochairman of the copper subcommittee of ISRIs nonferrous committee.
As
of this writing in late October, the price of copper on the Commodity
Exchange Inc. (COMEX) has been moving downward for two weeks, with all the
indicators pointing to further decline. Other weakness is evident as well:
Stocks of copper in London are double the levels of a year ago. Car sales
were good last month, but only because of a push to move 1990 models.
Housing starts are down and are moving lower each month. The copper tube
mills are having tough times with their sales. Brass mills are not buying
scrap with any enthusiasm. Cathode premiums are small. Ingotmakers are
doing well, but the feeling is that their business can fall through the
floorboards at any time. European business is good. Both domestic and
foreign refineries are at capacity. Demand for brass in India has dropped
off. Taiwan business for lower grades of labor-intensive material has
fallen. Sound bad?
It
may not be. My prediction is for current levels to stay firm for 1991.
There will be dips because of technical adjustments and movements to fill
gaps in COMEX trading, but overall I think things will be OK for the
following reasons:
The
crisis in the Persian Gulf has negative implications worldwide. Every
country has made forecasts and budgets based on oil at $20 to $25 per
barrel. Whether there is war or peace, the price of oil is going up,
creating worries that higher-than-anticipated energy costs can cause
less-than-anticipated growth, particularly for the new, growing Europe or
oil-dependent Japan. But there is still a lot of money out there, and
emerging nations want what they see. So, I predict that things will cost
more, but people will still continue to buy.
I
think the United States has been in a recession for more than a year, but
only select segments of the economy have felt it. As new segments move
into the recession, others should start to roll out and new segments
should start to develop. One new segment? Recycling. Not necessarily scrap
plants, but new recycling ventures, particularly municipal programs.
When
the price of copper drops to an unacceptable level, Zaire, Chile, and
other copper-producing countries always seem to experience a disruption in
supply that brings the price up. Not that these producers do anything on
purpose, but the supply side is the most important side. In the past, some
countries have overproduced in glut times to generate money for their
economies, so why not hold back in thin times? It makes good economic
sense to control what you can to ensure a favorable price.
Never
underestimate the power of the speculator, especially considering the
computer-controlled movement of large amounts of money through various
markets--including financial, commodity, stock, currency, and options.
With the small copper stocks in the COMEX warehouses, its possible to
see some manipulation.
Watch
the dollar. It always seems that the dollar and copper move opposite each
other.
Copper
By
Bill Rickher
Bill
Rickher is manager of metal purchasing for Cerro Copper Products Co. (Sauget,
Ill.) and cochairman of the copper subcommittee of ISRIs nonferrous
committee.
What
does 1991 look like? The general consensus at Cerro indicates that we
should be prepared for a lean year. Despite the sluggish economy, however,
our objective is to operate both of our plants at capacity.
In
addition, Cerro will continue with its $50-million plant expansion and
other improvement programs. We view these investments positively and
intend to devote our full attention in 1991 to our plant expansion in
Shelbina, Mo., and production improvements at our Sauget, Ill., facility.
The additional press and tube reducers in Shelbina will significantly
increase our capacity in both plants. This will allow us to be positioned
well during the recession and be advantageously situated when the economy
improves.
Cerro
will not need to buy more scrap to feed this plant expansion, which is
exclusively devoted to industrial tube production. This means that more of
our cathode production will be dedicated to internal demand instead of the
cathode market.
Will
scrap be hard to buy in 1991? I enjoy a challenge and have fun matching
wits with out competition, but I take my job seriously. Cerro will never
lay off people because it cant buy enough scrap.
It
is anybodys guess what the price of copper will do in 1991. I usually
dont try to predict the market, but I would expect copper to trade in a
range of 50 cents to $1.50 per pound. Is that close enough?
Iron
and Steel
By
Albert Cozzi
Albert
Cozzi is president of Cozzi Iron & Metal Inc. (Chicago) and chairman
of ISRIs ferrous committee.
Forecasting
commodity markets is relatively easy as long as the forecaster is allowed
to change the prediction frequently and remembers to predict either what
will happen or when it will happen. Predicting both variables
simultaneously invites folly or, worse, accountability.
Before
embarking on my prediction, lets briefly review the fundamentals
underlying the world steel economy as we head into 1991:
The
American Iron and Steel Institute has predicted that world demand for
steel will drop 1 percent during 1991 compared with 1990 levels, but will
rebound 4 percent in 1992.
The
dollar has been weak compared with the yen and other Western currencies.
Eastern
Bloc countries are converting to consumer-driven economies at an
escalating rate and are using raw material resources, including scrap, to
finance redevelopment.
Electric
furnaces and continuous casting continue to dominate steelmaking. At least
two additional casters will be commissioned in 1991 in the United States.
U.S.
automotive manufacturers are predicting that 1991 sales will be flat or
down slightly from 1990 levels.
The
current Middle East situation has hampered exports to the Far East.
Keeping
these fundamentals in mind, I believe that the 1991 scrap market will
follow a path virtually the same as the 1990 market. Sagging demand in the
U.S. industrial sector will negatively affect demand for steel and,
therefore, scrap. However, the rebuilding of the Eastern European
infrastructure will keep imports to a minimum, shoring up lagging domestic
demand. Furthermore, the weak dollar will permit a modest amount of steel
exports.
The
weak dollar will favor electric furnace operations, which make products
geared toward infrastructure capital projects, both foreign and domestic.
This, coupled with continued funding for the U.S. highway program, should
mean relatively good volumes for electric furnace producers and scrap
processors producing electric grades.
Integrated
producers, on the other hand, will face poor sales stemming from the
lackluster automotive industry. Lagging demand from the integrated section
will temper scrap prices during 1991.
Export
demand is the wildcard in my 1991 forecast. The current Middle East
situation has hampered scrap exports and will continue to do so until a
resolution is reached. It should be noted, however, that a significant
amount of export demand has been satisfied by Eastern Bloc sources. This
phenomenon is likely to continue in 1991.
In
summary, I project that the first quarter of 1991 will see the best
pricing of the year, followed by declines in the second and third
quarters, and a modest recovery in the fourth quarter.
I
reserve the right to change this forecast without notice and recommend
that the reader use this information at his or her own risk.
Lead
By
Louis J. Magdits
Louis
J. Magdits is manager of raw materials for Exide Corp. (Reading, Pa.) and
cochairman of the lead/zinc subcommittee of ISRIs nonferrous committee.
Lead
at 65 cents a pound!
Traditionally
sluggish price moves, the lead-producer prices reached an all-time high in
mid-March 1990. For the second year, producer list prices did not
accurately reflect the state of the lead market. Despite the significant
price rise, primary producers continued to sell metal to large-volume
customers on an LME basis, which resulted in a significant discount to
list price. Secondary producers, despite supplying approximately 65
percent of the metal produced, continued to sell at discounts to even
their own posted prices. The lead market could not sustain its historic
level for more than a few weeks, and the price declines were as abrupt as
the rise. By the third quarter, producer prices returned to the January
level of 40 to 43 cents a pound.
Unfortunately,
scrap processors did not experience record prices for lead-based material
due to the availability of scrap and the disparity between producer list
prices and actual transacted prices. Scrap processors handling spent
lead-acid batteries had difficulty selling material for more than 10 to 11
cents a pound. In contrast, the last time lead broke the 60-cent level,
spent batteries brought 17 to 19 cents a pound. During the third quarter,
many scrap dealers reported significant delays in pickups because of
excessive smelter inventories.
Eighteen
states have enacted legislation requiring retailers of batteries to accept
a spent unit in return for a new battery. In addition, several
manufacturers and retailers initiated buyback programs at the national
level. In 1990, the combination of the two resulted in a record year for
the collection of spent batteries. Several major secondary facilities due
on-stream in 1991 will likely absorb this temporary glut of spent
batteries.
Several
legislative initiatives that affect the lead industry were introduced in
1990. The lead bill sponsored by Sens. Harry Reid (D-Nev.) and Joe
Lieberman (D-Conn.) could restrict or eliminate the uses of lead and the
subsequent processing of lead-bearing scrap. The Environmental Protection
Agency, through its Lead Pollution Prevention Plan, is pursuing a strategy
of internalizing the cost of spent battery collection/recycling within the
battery manufacturing industry. It is not clear what effects this plan may
have on the future of scrap metal dealers handling batteries.
As
in the fourth quarter of 1990, the lead market in the first quarter of
1991 will be dictated by the health of the battery industry. With the
economy moving from a soft landing to recession, we should expect
lead prices to further decrease.
Nickel/Stainless
Steel
By
Arnold I. Plant
Arnold
I. Plant is senior vice president of Samuel G. Keywell Co., Plant Division
(Baltimore), and chairman of ISRIs stainless & alloys committee.
As I reread the comments made for 1990 on the outlook for stainless
steel and alloy scrap, after attending the Nickel/Stainless Steel
Roundtable in October, and after reading the New York Times religiously, I
can only state that there are many mixed and different views of 1991.
It is easy to find justification for any of the various scenarios
from good to lousy business for the upcoming year. The consensus of the
roundtable speakers and of those in and out of our industry seems to be
that the upcoming year will go from not very good in the first quarter to
average at midyear to pretty good for the third and fourth quarters. There
are probably more variables in this years projections than for any year
of the past decade, with the federal budget, Persian Gulf, Eastern Europe,
and many other factors having a bearing on the economic viability of the
future.
Our world is moving so very fast these days that it seems to be a
microcosm of time, and changes take place constantly rather than weekly as
they did in the 1970s and 1980s.
It is imperative for stainless and alloy scrap dealers to watch the
buying prices and all other expenses of their operations. I believe that
1991 could be a very tough year for our industry and one in which profits
can only be made through attention to all factors of our business. I
suggest that all expenses and purchasing be watched very closely during
the new year.
Paper
By
William A. Nielsen
William
A. Nielsen is president of Nielsen & Nielsen Inc. (Pomona, Calif.) and
president of ISRIs National Paper Stock Institute Chapter.
The secondary fiber market is in a state of depression. Low grades
and deinking grades of scrap paper have been in tremendous oversupply and
likely will continue as such for the next year or two. Meanwhile,
mandatory collection programs continue to generate massive quantities of
old newspapers, mixed office paper, and white and colored ledger.
We likely will see temporary upswings in the marketplace, but
little enthusiasm about the long-term outlook--until more paper mills
increase their use of secondary fibers. The printing and writing paper
mills are still deciding what percentage of secondary fiber they will use,
which will tie in with federal and state government mandates.
There is greater use of deinking grades in Europe and Asia than in
North America. Nevertheless, as new technology enters the marketplace,
more domestic mills will consume these grades. The outlook for deinking
grades of secondary fiber on a long-term basis, therefore, is good.
However, with the probable increase of mandatory collection, the quality
of these grades must be watched carefully.
The outlook for pulp substitutes is a bit better, but the severe
depression on the virgin pulp market has had a substantial effect on the
value of these grades. There is, however, enough consumption for these
grades to keep supply and demand in balance on a long-term basis. Since
approximately 97 percent of pulp substitute grades are already being
recycled, we should not see mandatory collection have any effect on this
category.
The next year in our industry will be a challenge as more and more
paper stock companies experience acquisition and the industry is further
consolidated.
I estimate that in three to four years there could be shortages in
many grades of scrap paper, but until additional worldwide consuming
capacity is created, we must work through these periods of challenge.
Zinc
By
David S. Aronow
David
S. Aronow is vice president of Arco Alloys Corp. (Detroit) and cochairman
of the lead/zinc subcommittee of ISRIs nonferrous committee.
The zinc industry enjoyed another profitable year as volumes and
prices were at fairly high levels throughout most of 1990. After a quiet
first quarter, the market strengthened and maintained price levels between
75 and 90 cents per pound from April through September. This was not only
due to a strong demand but also to producer production problems, tightness
of zinc concentrates, labor strikes at mines and smelters throughout the
free world, and the possibility of a military confrontation in the Persian
Gulf.
Economists are predicting a downturn for the U.S. economy for at
least the first half of 1991. The demand for zinc in the United States
should weaken as the galvanizers and die casters slow down because of
softness in the automobile and construction industries. Zinc prices are
expected to range between 50 and 70 cents per pound throughout next year.
However, unforeseen events such as a reduction in interest rates,
lower oil prices, or a weaker U.S. dollar could have a positive impact on
the economy. A prolonged war in the Middle East could cause the price of
all metals to skyrocket. Factors such as the unification of Germany and
the opening up of Eastern European markets to the West could have a
beneficial effect on the U.S. economy.
It must be noted that all but one of the North American producers
no longer publish a list price for zinc. They are now using an LME-based
pricing formula, with premiums over the LME price to establish a daily
spot price. In 1991, the LME is scheduled to open warehouses in the United
States, which may result in smaller premiums being charged above the LME
price.