July/August 1997
The outlook for most international scrap markets has changed from gloomy to mostly sunny since last fall. And recyclers at the BIR’s spring meeting in Istanbul forecast more blue skies for the remainder of the year.
By Kent Kiser
Kent Kiser is editor of Scrap.
“The depressions of last year have subsided and the silver lining to these clouds is now visible.” That’s how one scrap executive—Salam Sharif of Sharif Metals Ltd. (Sharjah, United Arab Emirates)—summed up the improvement in international scrap markets since the fall, speaking at the spring meeting of the Bureau of International Recycling (BIR) (Brussels) in Istanbul.
As of last October, dark clouds overhung global scrap markets, which were dragged down by sluggish world economies, the lingering effects of the Sumitomo copper scandal, ample inventories of some finished products and scrap, competition from imported raw materials and finished goods, and more.
This year, world markets are “undoubtedly in better shape” and are underpinned by subdued inflationary pressures, remote recessionary fears, and a bullish U.S. economy, which has had a ripple effect on economies around the globe, Sharif said.
The forecast, in other words, has changed from overcast to mostly sunny, with the likelihood of continued strong markets for the remainder of the year.
Ferrous Fights Back
In the ferrous niche, U.S. processors and brokers have been enjoying the “ability to sell scrap at decent prices and at relatively good quantities,” said Edward Hollander of Hollander Metals Inc. (Glenview, Ill.).
This demand is based on the robust U.S. steel industry, which continues to operate at more than 88 percent of capacity. Also, a handful of new minimills have increased demand for domestic ferrous scrap and kept it out of the export market. U.S. steelmakers, in fact, have had to import premium-grade scrap from Europe and the United Kingdom this year to meet their raw material needs, Hollander said.
Despite this strong demand and a rise in ferrous scrap prices in May, U.S. processors could see a “flat to slightly down June and July,” Hollander offered.
In the longer term, the health of the U.S. steel and ferrous scrap industries depends, in large part, on the continued strength of the U.S. economy. Though it has exhibited growth without inflation, there’s always the concern that the Federal Reserve Board could raise interest rates if “things move unfavorably,” Hollander said, cautioning that “nothing goes in a straight line forever.”
For its part, the Asia Pacific ferrous market has bounced back nearly 20 percent since its low in late December, noted John Crabb of Simsmetal Ltd. (Sydney, Australia).
This revival can be attributed in part to the successful anti-dumping cases filed by Taiwan and Thailand, which has enabled their steel producers to increase production free from the threat of cheap imports, particularly from the Commonwealth of Independent States, he explained.
Another reason for the upswing, Crabb noted, has been that the plentiful supplies of inexpensive pig iron—which displaced demand for ferrous scrap last year—have dried up, which “has forced many Asian steel producers to review their raw material requirements.”
Also, despite the financial troubles of major Korean steelmakers Hanbo Iron & Steel Co. and Sammi Steel Co. Ltd., Korea’s demand has improved since last fall, with its ferrous scrap imports reaching about 400,000 mt a month, Crabb said. This has occurred largely thanks to Korea’s production cuts and reductions in steel scrap inventories.
Malaysia, in particular, has been one of the Asia Pacific region’s bright spots in terms of domestic steel demand, Crabb continued. The country—along with Thailand—is expected to significantly increase its electric-arc furnace (EAF) capacity early next year, which will bring about a “stronger demand for imported material.”
In Japan, the more competitive yen has helped boost the country’s exports of industrial products, which has stimulated Japanese steel production as well as domestic ferrous scrap consumption and prices, said Hideo Itoh of Nakadaya Corp. (Tokyo). This demand has boosted Japan’s ferrous scrap prices 30 percent, which has meant that Japanese processors have been able to make a profit “after a long and difficult time.” And “as long as the yen’s value stays within a reasonable level and overseas markets stay healthy, we find no particular reason for the market to go weaker until the third quarter,” Itoh said.
As for China, “we continue to wait for the often forecast and now long overdue demand explosion for imported ferrous scrap,” Crabb said. Aside from an occasional cargo of imported shredded material, the country is apparently meeting its needs with domestic scrap and pig iron. The recent installation of additional EAF capacity, however, could stimulate China’s ferrous scrap imports, he said.
Overall, the Asia Pacific market is expected to continue strong in the near term. For one reason, 2 million mt of EAF capacity is expected to be added in the region. Also, expanded EAF steel production in the United States is limiting the amount of U.S. scrap available for export. And while more DRI and HBI capacity is planned, it won’t be available to meet the immediate needs of new EAF furnaces, all of which will “contribute to a continued improvement in Asian ferrous demand and prices during the next six months,” Crabb concluded.
Offering a rare glimpse into the Russian market, Mehmet Gultekingil of Newco Ferrous Trading A.G. (Steinhausen, Switzerland) reported that total production of leading Russian steel mills declined from 13 million mt in 1995 to 10.5 million mt in 1996. Of note, some major mills plan to modernize their production lines, expand capacity, and increase product quality in the next few years, he said.
Total Russian ferrous scrap available for domestic and export markets has remained at about 11 million mt since 1995, though the amount exported has increased from 14 percent in 1995 to 30 percent in 1996, Gultekingil said. The country’s scrap industry is hindered, he noted, by insufficient, unorganized, and costly collection, processing, and transportation systems.
In the scrap export market, the major difficulty is the insufficiency of loading ports for storage and loading bigger quantity cargos. Some of these problems are being addressed as the private sector increases investment in the scrap business. As this transition occurs, Gultekingil said, “no doubt the quantity of scrap supply for exports will increase through the coming years.”
Nonferrous Rides the Economic Recovery
The sunny skies in the ferrous industry have also shined on the nonferrous scrap markets this year.
In the United States, business in most nonferrous sectors remains robust, according to a report by Robert A. Stein of Louis Padnos Iron & Metal Co. (Holland, Mich.).
The market rebound can be seen in copper scrap values, which have increased almost 30 percent in the past six months, thanks to a thriving brass mill industry and healthy demand from other secondary consumers, Stein said. Notably, some processors are apparently withholding material in anticipation of higher prices and, coupled with an occasional short supply of refined copper, this “has made scrap an expensive source of feed for consumers,” he noted.
The U.S. aluminum scrap market has also fared better and has maintained decent spreads in relation to LME prices. Demand has been firm for domestic primary grades of aluminum scrap, while secondary grades have recovered from their late-1996 slowdown, increasing along with higher LME prices and in response to the settlement of the General Motors strike, which had created surpluses of secondary ingot, Stein said. This niche’s outlook is “quietly steady for the summer and strong for the autumn.”
While “higher prices abound” in the zinc scrap market, he continued, “the structure of the market has changed little” since the fall. Though demand for zinc-containing shredder residue remains strong, supplies of galvanizers’ scrap remain constant and export markets are stifled as exporters await an Indian High Court decision on the current ban on the importation of skimmings. Despite forecasts of increased overall zinc consumption and a Western World deficit of primary metal this year, “the outlook for zinc scrap seems more dependent on issues unrelated to price,” Stein said.
As for lead, good demand for scrap, prompted by increased smelting capacity, has created strong competition that has inflated scrap values, he noted. As smelters’ margins narrow and as the lead industry enters the typically slow summer months, however, a production decrease and lower scrap prices could be in the offing, Stein maintained.
The humming U.S. economy has certainly helped stimulate recovery in the Asia Pacific nonferrous market, according to John Crabb.
In the copper and brass niche, Chinese demand has been consistent and at generally competitive prices, Japan and Korea continue to import reasonable volumes—though currency “realignments” in both countries have made imports less attractive—and India continues to be a major consumer of brass, Crabb said. Looking ahead, he offered, “import demand for copper and brass grades from the major Asian economies should remain strong.”
With world demand for aluminum products rising at a 10 percent annual rate in the first quarter, demand for aluminum scrap has also been strong throughout the Asia Pacific region and prices have risen, aided by decreasing LME stocks, Crabb said. Extreme competition among secondary aluminum smelters will likely keep aluminum scrap imports firm in the near term.
About the only nonferrous underachiever in the Asia Pacific market has been lead, which has weakened substantially in recent months, with large stocks of secondary lead and scrap lead-acid batteries overhanging the market in Asia and scrap lead prices following primary prices downward. “Until some of this inventory can be reduced,” Crabb said, “the lead market is likely to remain soft.”
A Nickel Deficit Looms
Driven by continuing growth in stainless steel demand, the world nickel market could shift from a 17,000-mt surplus in 1996 to a 15,000-mt deficit this year, said Ivor Kirman of Inco Europe Ltd. (London).
This forecast is based on five factors, with the first being the dwindling effect of Russian primary nickel supplies, which have stabilized around 190,000 mt a year. As for scrap from Russia and Eastern Europe, “artificial scrap” exports—that is, the shipment of primary nickel under the guise of scrap—and shipments of spare parts or unused components as scrap have virtually ceased, and most of the countries’ easily processed “scrap mountains” have been consumed, Kirman said, though he noted that the scrapping of obsolete capital equipment has barely started.
The second factor affecting world nickel demand is the continuing evolution of world industrial economies, and particularly the increasing consumption of stainless steel. “Industrial production is looking good almost everywhere except the former Soviet Union,” Kirman said. “Growth with low inflation has been achieved and looks sustainable at least for the next year or two.”
Another issue is the evolution of the world stainless producing industry, which accounts for more than 60 percent of primary nickel consumption and more than 70 percent of total nickel unit consumption (primary plus secondary), Kirman said. Stainless production capacity is projected to expand 7 percent in 1997 to 21.2 million mt, while actual production is projected to grow 6 percent to 15.8 million mt.
The final two key factors are scrap nickel availability and primary nickel supply. Even though primary nickel supply is projected to increase to 984,000 mt in 1997, world demand is expected to reach 999,000 mt, which would shift the market from its 17,000-mt surplus in 1996 to a 15,000-mt deficit this year, Kirman said. In the longer term, he added, capacity additions could boost Western primary nickel supply to around 1.1 million mt by 2001.
In the United States, production of stainless grades, including 400 series, was 2.12 million gross tons in 1996, with 1997 production expected to grow 3.5 to 6 percent, said Stainless Steel & Special Alloys Committee Chairman Barry Hunter of Keywell L.L.C. (Elizabeth, N.J.). About 65 percent—or 1.4 million gross tons—of this production could be devoted to austenitic, or nickel-bearing, stainless grades. Assuming an average 8.5 percent nickel content in these grades, “we’re talking in the neighborhood of 120,000 gross tons of required nickel for that production,” he said.
Scrap nickel units account for about 38.5 percent of total nickel requirement for austenitic stainless steel grades, which equates to approximately 46,000 gross tons of nickel, or around 540,000 gross tons of scrap (assuming an 8.5-percent nickel content), Hunter reported. Adding in annual stainless scrap exports of about 250,000 mt, a total of 800,000 gross tons of austenitic scrap is potentially available to U.S. stainless producers, he said.
In 1997, world production of austenitic stainless steel could reach 11 million tons. Assuming scrap’s 38.5-percent share of the market, that would create demand for more than 4.2 million tons of related scrap product, or basically three times the current total U.S. production of austenitic stainless steel, Hunter noted.
While U.S. stainless production has been healthy, with first quarter shipments growing 2.2 percent compared with first-quarter 1996, producers’ profits declined nearly 29 percent. This has occurred due to increased competition from imports and producers’ inability to impose meaningful price increases. A turnaround in this situation will require a lower dollar exchange rate, a higher and less volatile LME nickel structure, and a general economic pickup in Europe and Asia, Hunter maintained.
If the market stays status quo, however, there could be a buildup of inventories of finished stainless product, which would “tend to increase discounts and profitability and would eventually reduce production,” he said.
On the brighter side, if European and Asian economies continue to improve, potential consumption in the United States “could support a 6-percent increase in production, thereby maintaining high scrap utilization and hopefully decent business,” Hunter offered.
In the U.S. alloy scrap market, superalloys have been in keen demand by both processors and consumers thanks to the burgeoning aerospace industry, said Sidney Greenberger of National Nickel Alloy Corp. (Pittsburgh). Other grades such as cobalt and cobalt alloys, tool and die steel, nickel-chromes, nickel-irons, nickel-coppers, and molybdenum have also shown strength. Titanium scrap, in contrast, has weakened due to huge shipments of C.I.S. material to U.S. mills, though these supplies will likely diminish, bringing about a firming in the market, he said.
U.S. special alloy recyclers expect satisfactory volumes but narrower profit margins for the rest of 1997, Greenberger offered. There’s the chance, however, that a shortage of some alloy scrap could develop, in which case “there could be a sharp spike in price for all the nickel-containing scrap that’s available,” he said.
In the Asian market, Japan produced about 3.2 million mt of stainless in 1996—slightly down from 1995 production—and exported almost 36 percent of that total to Taiwan, Korea, the United States, China, and other countries, said Hideo Itoh.
As for scrap, Japan imported 165,153 mt of stainless scrap in 1996, while Taiwan imported 74,797 mt of mainly U.S. scrap and exported 48,237 mt, Itoh said.
Korea, meanwhile, imported 111,513 mt of stainless scrap in 1996, or 15 percent less than in 1995, while China has moved from an importer to an exporter of stainless scrap, opting to buy stainless mill products rather than producing the metal itself, according to Itoh.
Paper’s Prospects Look Up
As with most metals, the oppressive clouds depressing the international scrap paper markets have finally begun to break up this year.
In the United Kingdom, for instance, strong domestic paper production and an equally strong export market have created consistent demand for scrap paper, said Paper Division President Gerry West of Severnside Waste Paper Ltd. (Cardiff, Wales). By the numbers, U.K. paper production increased 2.5 percent to 6.2 million mt in 1996, while scrap paper consumption rose almost 7.5 percent to 4.32 million mt. This trend continued in the first quarter of this year, with production rising 3.5 percent to about 1.6 million mt and scrap consumption growing 7.7 percent to 1.12 million mt, with projections calling for year-end scrap demand to reach 4.75 million mt, West said. Nowhere are the prospects brighter for scrap paper than in the Asia Pacific region, noted Gaius Gyllenbogel of Paperinkerays Oy (Helsinki).
Asia Pacific paper producers consumed 23 million mt of scrap paper in 1995, with imports accounting for 30 percent, or 6.5 million mt, of the total, he reported.
Of the estimated 25 million mt of new paper production capacity planned worldwide, Asia Pacific mills will reportedly add 15 million mt of that total, he said.
This new production will boost Asia Pacific demand for scrap paper to 47 million mt by 2010. To ensure a reliable flow of scrap paper, Asia Pacific consumers will increasingly purchase or establish collection companies in the United States, a practice that Korea, Taiwan, and Japan already use, Gyllenbogel said. Also, sorting mixed paper will be a viable option for countries with low labor costs.
As for the U.S. market, overall conditions continue to be mostly cloudy. While U.S. mills have provided some stable demand for wood-free deinking grades and pulp substitutes, some containerboard mills announced downtime in the second quarter and export markets declined 21 percent through February, according to a report by Steve Vento of Recycled Fibers International (Sunrise, Fla.). “If the export demand continues to weaken, it will likely cause softening in domestic prices,” he said, asserting that “overall there doesn’t seem to be much hope for improved business over the summer months. We can only hope the fourth quarter shows some slight improvement to lead us into 1998.”
Preparing for the Basel Ban
The Basel Convention continued to top the BIR’s environmental agenda in Istanbul, and for good reason, given that the treaty’s ban on the shipment of “hazardous” wastes from developed to developing nations will take effect in half a year, on Jan. 1, 1998.
The convention, which was established to prevent industrialized countries from shipping “hazardous” wastes to developing countries, is a classic case of a good idea gone bad, largely due to its poor waste definition—that is, its erroneous categorization of scrap recyclables as wastes, asserted Robert Reiley of the U.S. Department of Commerce (Washington, D.C.).
While the United States has signed the Basel Convention, it hasn’t passed legislation to implement the treaty, which means it isn’t a full party but rather an “observer” nation. And the United States is unlikely to ever fully join due to the convention’s inherent problems, Reiley asserted.
One of these is its waste/scrap definition. The U.S. EPA’s decision to exempt prompt, home, and processed scrap metal from its definition of waste (see sidebar above) makes the Basel Convention’s waste/scrap definition contrary to U.S. law, Reiley noted. And if the United States is no longer regulating certain scrap materials as waste, it won’t allow an international trade treaty to regulate them for it, he stated.
Offering other comments about the convention, Reiley suggested that Basel parties should be able to test materials from the treaty’s A list of hazardous materials to the nonhazardous B list and that the convention’s lists should be formally adopted and legally binding on all parties. Countries within the convention “must also maintain the right to agree among themselves what materials are allowed to be traded,” Reiley said.
Offering an update on the status of the Basel Convention, Ross Bartley, the BIR’s environmental officer, noted that the treaty’s technical working group has added a few new scrap materials to the B list of materials exempt from the Jan. 1 ban. These materials mostly cover “wastes” containing copper or zinc compounds, as well as mixed nonferrous shredded scrap.
Though most scrap metals and some nonmetallic scrap are considered B-list materials that are exempt from the impending ban, other materials such as lead-acid batteries are on the A list of banned materials or the C list of items awaiting classification. These latter materials, Bartley noted, include PVC coated cables, fluorinated polymer wastes, chlorinated polymer and copolymer wastes, and more.
Concerns and confusion about the convention’s lists, including the problem of mirror listings—in which materials appear on two lists—will be addressed at the final meeting of the conference of the parties this October in Kuala Lumpur, Malaysia. “Time is getting short, and things will happen very quickly at the end of the year,” Bartley said.
Turkey's Steel Strength
Since 1980, Turkey’s steel industry has had the highest development rate of all steel-producing countries and has established the country as the 15th largest steel producer in the world, said Fahrettin Kunak of the Turkish Iron & Steel Producers Association (Ankara).
Currently, Turkey has 22 steel mills—three integrated works and 19 EAF plants—that have an annual capacity of about 20 million mt, with electric furnaces accounting for 71 percent of that total, basic oxygen furnaces 25 percent, and open-hearth plants 4 percent, he said.
By product type, long products account for 83 percent of Turkish mills’ production, while flat products and special steel have a 14- and 3-percent share, respectively. As these figures indicate, Kunak noted, Turkey has excess capacity for long products and a shortage of flat product and special steel capacity, which points to the need to balance its steel production.
In addition to raising steel consumption per capita, which is about half that of the European Union, Turkish steelmakers need to rehabilitate old plants, modernize some EAFs, and pay more attention to environmental problems, Kunak said. As for scrap, Turkish steelmakers consumed 9.5 million mt of scrap in 1996, with imports accounting for 7 million mt—or 74 percent—of that total, he reported.
Stainless Processing, Turkish Style
Although Turkey is a significant steel producer and, hence, consumer of iron and steel scrap, it has no stainless steel mills, which means that Turkish stainless pro-cessors must export all of their material.
Hursan Metal Ticaret ve San A.S. (Istanbul) reportedly recycles 80 percent of the stainless steel scrap generated in Turkey. The firm produces 13,000 mt a year of 1-meter stainless bales, shipping two 25-mt 40-foot containers a day, according to board member Enis Dilek. Virtually all of this scrap is exported to European consumers, says Nilgun Pekel, foreign trade manager.
Hursan Metal draws its material from about 100 small suppliers, as well as kitchenware factories. Around 80 percent of incoming material is production scrap as there is little obsolete stainless in Turkey.
The company, which operates out of a 11/2-year-old, completely hard-surfaced facility, has 45 employees. Notably, no environmental or safety restrictions are currently imposed on scrap processing plants in Turkey, say Hursan Metal’s principals.
Paper's Potential in Turkey
In the world paper and paperboard market, Turkey is the 29th largest producer, with 38 mills that have total capacity of 1.5 million mt and actual production of 1.105 million mt in 1996, said A. Salih Cetinsoy of Kartonsan Karton Sanayi ve Ticaret A.S. (Istanbul).
In terms of paper and paperboard consumption, Turkey ranks 25th in the world at 1.81 million mt in 1996, with imports accounting for 750,000 mt of that demand and exports totaling 45,000 mt. In short, Turkey is “still a net paper importing country,” noted Akin Paksoy of Olmuksa Mukavva Sanayi ve Ticaret A.S. (Istanbul).
In the scrap realm, Turkish mills consumed 638,000 mt of recycled fiber in 1996, with domestic collections meeting 590,000 mt of that demand and exports filling the remaining 48,000 mt. With a domestic paper recovery rate of 32.5 percent in 1996, Turkey “is not using the whole potential of waste paper collection as yet,” said Cetinsoy, asserting that “the collection rate should be increased by all means.”
In the future, Turkey’s paper and paperboard industry is expected to grow significantly to meet the expanding needs of its 65 million citizens, as well as the 350 million people in the neighboring Middle East, Paksoy stated.
Yet, while “new investments are expected by the existing and new emerging recycling companies to assure the increasing paper production,” Turkey will “continue to import certain grades at least for another one or two decades” to increase the quality of its recovered fiber furnish and compensate for the lagging collection of its domestic fiber, Paksoy said.
U.S. Scrap-vs.-Waste Victory
U.S. scrap recyclers have won a major battle in their war to distinguish scrap materials from waste and legitimate recycling transactions from those arranging for the treatment or disposal of waste, said Herschel Cutler of the Institute of Scrap Recycling Industries (Washington, D.C.).
On April 18, the U.S. Environmental Protection Agency (EPA) signed a final rulemaking that creates a class of “excluded scrap metal” under its Resource Conservation and Recovery Act.
This class covers prompt industrial scrap, home scrap, and processed scrap, which the EPA defines as material that has been baled, sheared, shredded, chopped, crushed, flattened, cut, melted, or separated by metal type, as well as fines, drosses, and related materials that have been agglomerated.
The decision is limited to scrap metal, which means that such products as lead-acid batteries and nonmetallic scrap aren’t included in the exemption and are, therefore, still in jeopardy of being considered waste.
Still, the exemption means that the product of U.S. scrap metal recyclers “will no longer be viewed as a waste and those facilities won’t be considered solid waste processing businesses,” Cutler said.
This decision will help U.S. recyclers argue that legitimate recycling transactions should not be equated for Superfund purposes with arranging for disposal of waste and, hence, could help free them from liability under the law, he asserted.
The U.S. distinction also gives hope to recyclers around the world that efforts “designed to make clear the difference between scrap and waste can be successful,” Cutler said. •
The outlook for most international scrap markets has changed from gloomy to mostly sunny since last fall. And recyclers at the BIR’s spring meeting in Istanbul forecast more blue skies for the remainder of the year.