July/August 1995
International recyclers met in Amsterdam during the last days of May to discuss market conditions for recyclables in various parts of the world and to name their new president.
By Elise Browne Hughes
Elise Browne Hughes is editor of Scrap Processing and Recycling.
If supply and demand were the only factors determining scrap-related commodity markets, reporting on world market conditions would be a lot simpler than it actually is.
The fact is, that while those fundamentals certainly key, they aren't the only major influences on international scrap markets today--a reality alluded to in many of the reports presented at the spring convention of the Bureau of International Recycling (BIR) (Brussels, Belgium), held in Amsterdam, Netherlands. International restrictions on the movement of scrap and world currency fluctuations have effectively ruled out certain trade patterns, and the speculative use of commodity exchanges by investment funds has artificially impinged on scrap prices, speakers noted.
In addition to discussions to discussions of these issues, the convention featured the passing of the BIR presidential baton from Jean-Pierre Lehoux of Federec (Paris) to Anthony P. Bird of the Bird Group of Cos. Ltd. (Stratford-upon-Avon, England), immediate past president of the BIR ferrous division and a former chairman of the organization's environment committee.
The conference also marked the second BIR meeting in a row to include a representative of Greenpeace's toxic trade prevention campaign on the speaker panel.
Defining Success
Like every BIR conference in recent years, the Amsterdam meeting included much talk about how the internationally accepted inclusion of recyclables in the definition of waste is hampering scrap trade covered by three supranational rules limiting transfrontier movement of "wastes": the Base1 Convention, the Organization for Economic Cooperation and Development's (OECD) decision on shipments of recyclables, and European Union council regulation 259/93. But this spring's convention offered more evidence than ever that public authorities are recognizing the effects these rules are having on international recycling efforts.
According to Environment Committee Chairman Patrick A. Neenan of AMG Resources Ltd. (Harborne, Birmingham, England), official representatives from countries party to the Base1 Convention are now expressing concern that the convention's upcoming ban on shipments of potentially hazardous recyclables from OECD to non-OECD nations "might endanger the legitimate trade in recyclables on which non-OECD countries depend.”
He also pointed out that BIR officials recently met with Ritt Bjerregaard, the European Commission's new environmental commissioner “and in subsequent correspondence, she has acknowledged the inconsistency and the imprecise nature of the [waste] definition.” Furthermore, noted BIR Secretary General Francis Veys, Bjerregaard has requested information from the association on defining what she refers to as “secondary raw materials” –the precise terminology BIR has used to illustrate the distinction between scrap and waste.
Robert Voss of Voss International Ltd. (Wealdstone, Harrow Middlesex, England) offered more heartening news on this front, noting that the Molitor Group on the Environment—a panel that advises European Union council ministers on the impact of legislation—declared in late May that “waste should be redefined to ensure that by-products and secondary materials are not unnecessarily regulated." Voss called the announcement a "ray of hope that our long and ongoing discussions are seeing some success.”
BIR convention delegates were able to experience another ray of hope firsthand, when Margaretha de Boer, the Dutch minister of the environment, addressed the group's general assembly. In regard to the international restrictions on scrap shipments, she said, "In principle, I take the view that if [the world's developing nations] are so clearly of the opinion that a ban of this kind has to be introduced, it is difficult to refuse that wish.” But de Boer also declared, “There may be advantages to cease designating a substance as waste if recycling can accordingly be promoted. ... This is why we are ascertaining nationally whether it will be possible to establish which substances linked to a particular application no longer need to be designated as waste.”
With these positive developments as encouragement, the BIR has committed funds to a legal challenge to the definition of waste being undertaken by the British Metals Federation (Brampton, Huntingdon, England), Neenan noted. In preparing for this challenge, the federation, in consultation with the BIR , sought the opinion of a queen's counselor, he said, and the response “appears to vindicate our position that with very few exceptions materials recovered for recycling and reuse are not waste.”
Harvey Alter of the U.S. Chamber of Commerce (Washington, D.C.)—a convention guest speaker who brought to the podium his experience as a national representative at official meetings on the Base1 Convention and the OECD agreement—applauded the industry's efforts to wage this legal battle. He cautioned the group, however, that the struggle is likely to be difficult since the rules that define recyclables as waste are often based on “politics over reason.”
As an example of this, Alter cited a statistic that trade in secondary raw materials from OECD countries to non-OECD countries has been increasing at an annual rate of 10 percent, while the trade flow between non-OECD nations grows more than 200 percent per year. Yet the international waste rules target movement of materials from OECD to non-OECD—leaving the more explosive trade pattern unrestricted, he said.
Nonferrous Ups and Downs
Recyclers of nonferrous scrap have probably been the hardest hit by international waste rules and other outside market factors. Nevertheless, speakers at the nonferrous division meeting imparted a mostly positive scenario for their commodities.
In China, for instance, reported John Crabb of Simsmetal Ltd. ( North Sydney, Australia), “despite concerted efforts to slow growth,” nonferrous demand has remained very strong. Even the easing in LME prices in recent months hasn't slowed Chinese buying, he said, pointing out that it's been the reverse, “with buyers taking advantage of the arbitrage between the Shanghai Metal Exchange and the LME.” This, combined with physical shortages has pushed the nonferrous division the Shanghai exchange into backwardation—resulting in “attractive” premiums for exporters to China .
Another noteworthy player in the region, Crabb asserted, is Malaysia , where the “buoyant” economy's consistent growth rate is “the envy of even its Asian tiger neighbors.” While the country is not a very large market for imported copper-based scrap, and its one local lead smelter is suffering the effects of import restrictions, Malaysian car production continues to grow and “has contributed to a strong domestic market for secondary aluminum,” he said, “with four secondary aluminum smelters now operating in a semiprotected environment.”
The secondary aluminum industries in Japan and Taiwan have been faring less well. In Japan, a variety of trends have helped push the market lower, Crabb explained, pointing to the move toward offshore manufacturing, the strength of the yen, and the less-drastic drop of scrap prices in comparison to the recent LME aluminum decline. In addition, he said, “competitive pressure from new entrants in the secondary aluminum market has seen increased levels of imports, further depressing prices.” As for Taiwan, “the secondary aluminum industry is still strong but is under similar pressure as Japan as prices weaken and manufacturers are forced to compete in a softer Japanese market,” Crabb concluded.
Offering the U.S. perspective, Robert Stein of Louis Padnos Iron & Metal Co. (Holland, Mich.) blamed interest rate increases on a declining economic outlook. “Automobile sales, on which our industry is so very dependent, are down,” he reported, noting that aluminum scrap markets have eroded as a result. Most other nonferrous scrap markets have been less pinched, he indicated. Most of the last several months were highlighted “good strong demand” for copper scrap, Stein said, “but we have recently seen a rather subtle decrease in the amount of copper and brass scrap available at dealers' works.” Lead fundamentals also have been good, he noted.
The domestic scrap zinc market remains at “very satisfactory” demand levels, Stein said, but the export market has offered generally better values, with heightened interest from Taiwan and China for shredded material. “Galvanizers' residues have also found good homes outside of the country,” he added, noting that the Indian market has shown signs of strong buying—but this has been inconsistent, reportedly because of that country's indecision on whether to categorize these materials hazardous under the Basel Convention guidelines.
Looking ahead a few months, Stein forecast challenging times for the U.S nonferrous industries but noted that lower long-term interest rates “should have a positive impact on housing construction.” Furthermore, he said, “there are signs that near-term interest rates may decline, which would bode well for the automakers and the durable goods manufacturing sector.”
Steel Demand Continues
At the ferrous division meeting, Edward Hollander of Hollander Metals (Glenview, Ill.) gave a similar review if the stagnating U.S. economy and its adverse effect on the auto and housing industries. But despite this, he pointed out, U.S. steel mills were operating at more than 92-percent capacity and are expected to produce 92 million to 93 million tons of steel in 1995. The cause of this irony, he explained, is the weak dollar, which is encouraging exports of steel products.
Turning to scrap specifics, Hollander noted that flooding on the Mississippi and Missouri rivers is causing scrap transport problems in the Midwest. Add to this repairs to the locks on the Illinois River (which were expected to close the river for up to three months this summer), plus the lack of sufficient rail and truck capacity to move all the scrap that mills normally purchase from this area, and, he predicted, the result could be “a surplus of scrap with no place to go.” He added, “Not all is gloom and doom, however. We continue to see new minimill capacity coming on-stream almost daily, and these mills will require good low-residual scrap.”
Europe is experiencing similarly positive prospects for steel production and scrap consumption, according to Raymond George of S.A. George & Cie (Liege, Belgium). Total production in the European Union was up 3 percent in the first four months of 1995 compared with the same period last year, he noted, pointing out that 1994 production was up too--5 percent over the previous year. Scrap consumption, meanwhile, was about 10 percent higher in 1994 than 1993 and is likely to be even higher in 1995 in light of the recent installation of four new minimills, he said. George explained, however, that polarities in today's world currency rates are allowing scrap processors in countries with weak currencies to take advantage of rising scrap demand, so some European recyclers aren't necessarily able to share in this trend.
John Crabb offered an Asian perspective on the effects of currency relationships, noting that this issue, combined with freight rate hikes and strong U.S. and European scrap demand, “have all dictated the price level for ferrous material through their impact on supply.” Regional demand for scrap is “more or less playing a secondary role," he added.
And scrap demand--at least in terms of imports—is strong indeed in some Asian nations, notably Japan, Korea, and Thailand, he said. With Japan, much of this can be traced to the earthquake that hit Kobe in January, Crabb explained, noting that in the first half of this fiscal year, scrap imports could reach 800,000 metric tons (mt)—“more than five times higher than the corresponding period last year.” Korea 's scrap imports are also expected to be “significantly higher” this year and are likely to represent more than 50 percent of the country's scrap requirements, he said.
As for Thailand, it “has finally been elevated from the role of bridesmaid to bride,” with 1995 steel production apt to register 50-percent higher than 1993 figures and scrap imports predicted to be “well in excess” of the 1 million mt imported in 1994, he noted.
Nickel and Stainless Scrap Tight
Strong demand for scrap has been a key feature in many of the international stainless steel and alloys markets too, BIR speakers reported. In fact, industry experts from throughout Western Europe and the United States noted high demand but tight supplies for most of their scrap products. Some also pointed out that world currency variations and investment fund participation in LME nickel contracts have added another dimension to the equation. As a result, summed up Walter Riedwig of Leila AG ( Zurich ), “stainless steel scrap has become a highly speculative product.”
There's little likelihood that much of this scenario will change anytime soon, said Stainless Steel and Special Alloy Committee Chairman Barry Hunter of Keywell Corp., (Elizabeth, N.J.). “Worldwide growth of the stainless steel industry is now estimated at approximately 7 percent through 1997,” he said. “Our industry will be hard-pressed to meet these growing demands, as available Barry Hunter scrap will remain in tight supply.” Thus, he added, “some consumers will have to turn to lower and lower scrap charges and replace this shortfall with other nickel and chrome units.”
Hunter pointed to the 44,000-mt draw down in LME stocks in the first five months of this year as indication that this has already begun. Yet this stock reduction hasn't resulted in higher LME nickel values, he noted, blaming this on the transformation of the exchange into “just another trading market.”
Hunter also commented on U.S. scrap exports, pointing out that, even with strong demand at home, exports totaled approximately 79,000 mt in the first quarter of this year—an increase of more than 16 percent compared with first-quarter 1994. More than 90 percent of the l995 exports went to six countries—Canada, Belgium, Japan, Korea, Spain, and Taiwan-he said.
Sidney Greenberger of National Nickel Alloy Corp. (Greenville, Pa.) added to the U.S. perspective with a look at special alloys and metals. A number of these materials have seen scrap markets punctuated by strong demand and tight supplies, he said, specifically mentioning nickel, nickel-chrome-ferrous, nickel-chrome-moly-ferrous, super alloys, and corrosion alloys. He also pointed to good demand for stellite, cobalt, nickel-copper, and titanium scrap, though noting that the market for that last item had been showing signs of weakening.
Reflecting on a statement he made at the BIR 's last meeting in October, Greenberger noted that he had forecast “that the demand for new stainless steel would require that consumers of nickel-bearing scrap might have to reluctantly pay prices approaching or equaling the LME nickel price.” Today, he said, “I can say with certainty that the scrap price for nickel units has, in fact, exceeded the LME cash price.”
One area of the world where nickel and stainless steel have not been such hot commodities is Eastern Europe , according to Moscow-based Alexander Tchirkov of Elektrostal, one of Russia 's leading stainless steel producers. The guest speaker noted that consumption of nickel in the former Soviet Union dropped 47 percent between 1989 and 1994 but that some rise in demand is expected this year. He attributed the slump to depressed demand for nickel-based products—pecially for defense applications, which were devastated by the Soviet breakup--as well as operational problems plaguing nickel producers, such as lack of spare machinery parts, increased transportation rates, and rising energy costs.
Exports of nickel from the former Soviet Union have also seen a significant—albeit short-lived—decline in recent years, Tchirkov noted, citing the following export quantities: 95,100 mt in 1991, 36,200 mt in 1992, and then back up to 77,400 mt in 1993 and 89,100 mt in 1994. The beginning of this year has seen exports trending higher again, he added, cautioning Westem industry participants not to be concerned about this flow since it was “mainly attributed to high levels of metal stocks at producers' and consumers' warehouses that were not demanded for in the previous years.”
Paper's Rising Trends
Clearly, most of the reports on these various commodity markets were fairly positive, but the paper session offered probably the brightest view, with delegates unanimously recounting higher prices, demand, and recovery of their products, with no significant downturn in sight.
This scenario is not aggravation-free, however, they also agreed. Reports on markets in Eastern and Western Europe as well as the United States noted a major shortage of scrap material to meet demand. Some also noted problems with increasing prices. Egidio Pedrini of Assorecuperi (Milan, Italy), for example, said that high values have encouraged “unrestrained competition” in his country and called current price levels “dangerous.” And a report by Steve Vento of William Goodman & Sons Inc. (Sunrise, Fla.) stated, “While higher prices will benefit the industry, there is growing concern that prices, which are swelling long-term, could curb some mills from maximizing their use of recovered fiber.” A number of U.S. mills already are looking to either slow down their recycled-capacity development plans or use of recovered fiber, he noted.
Vento's report pointed out, however, that prices for two of the most expensive grades—corrugated and deinking material—had been declining somewhat, thanks in large part to reactions on the export market. Several Asian mills have been “expressing reluctance” to continue paying high prices for these grades, he explained, and the resulting softer export market has enabled domestic mills to lower buying prices. Nevertheless, he continued, new capacity for both of these grades is still being added, which should further strengthen demand and “keep prices solid.”
Commenting on the capacity situation in the United Kingdom, Gerry West of Severnside Wastepaper (Whitchurch, Cardiff, England) said that new projects coming on-line in the next few months, plus planned expansions at existing operations, are adding 900,000 mt of capacity to the domestic market. Meeting this new capacity demand would require U.K. paper recovery to rise in the next 12 months from its current level of 32 percent to 45 percent--an unlikely jump for that time frame, he said.
In summing up the national delegates' reports, Paper Division President Giampiero Magnaghi of ComImpex SpA (Rozzano, Italy) reflected on the capacity increases many divisional reports noted, saying paper manufacturers must have based their new units “on theoretical collections, not economic viability.”
International recyclers met in Amsterdam during the last days of May to discuss market conditions for recyclables in various parts of the world and to name their new president.