January/February
2007
1991
Commodity Wrap-Up—A Year to Forget
The market reports were largely optimistic at BIR’s fall meeting in Brussels, with most speakers predicting stable to higher prices and increased global demand for many
commodities.
BY
RACHEL
H. POLLACK
the 1958 World’s Fair in Brussels. This structure, designed to last only one year, has instead survived for decades, including a renovation last year that replaced much of its aluminum skin with more durable stainless steel.
It has become a much-beloved landmark of this international city, which hosted the 2006 autumn roundtable of the Bureau of International Recycling (Brussels). It’s an apt symbol, perhaps, for metal’s endurance and the brightness of the markets that BIR attendees expect looking forward. About 750 delegates—a record for a fall BIR meeting—convened at the Sheraton Brussels to discuss the outlook for 2007.
STAINLESS STILL STRONG
World stainless production should reach 27 million mt in 2006, a 9.4-percent increase from 2005, with demand expected to continue through the first quarter of 2007, said Stainless Steel & Special Alloys Committee Chair Michael Wright of ELG Haniel Metals Ltd. (Sheffield, England). Asian production should show the greatest growth, with a forecast 11.3-percent gain in 2006. That continent represents 53 percent of global production, Wright noted. Other regions expected to show gains in 2006 are Europe, up an estimated 6.6 percent, and the United States, with a predicted 8.9-percent growth.
Western European stainless production should be up 6.6 percent, Wright said, reaching 600,000 mt by the end of 2006. He described the European market as “very solid, with a healthy demand for raw materials,” which could continue well into 2007.
The United States should see only expected fourth-quarter downturns in 2006 stainless production, in contrast to the
“dynamic effort to reduce inventories” at this time last year, reported Barry Hunter of Hunter BenMet Associates LLC (New York). He cautioned that record-high prices for nickel are
increasing the popularity of low-nickel stainless alloys, but he predicted this change would not affect stainless scrap’s marketability. “China continues to dominate U.S. export destinations,” he added. Overall, the market picture has “small clouds on the near horizon but no immediate sign of rain,” he said.
Even though Russian stainless scrap exports might be down 30 percent in 2006, to 250,000 mt, Ildar Neverov of Scrap Market Ltd. (Moscow) still characterized the market as “export-oriented.” He attributed the decrease to growth in domestic production and scrap consumption and to high export duties. Neverov pointed to the value-added tax as a critical issue for Russian stainless scrap. In 2006 Russia gave scrap companies the option of selling scrap with or without the VAT to eliminate fraud and increase government revenue. The experiment has not worked as hoped, Neverov said, but he expects the country to eliminate the VAT for scrap entirely in 2007.
Asia should drive global growth in stainless production for the next decade, Wright said. China, now the world’s largest stainless producer, also is the world’s largest stainless consumer,
demanding more than 5 million mt in 2006. Its production should reach 4.8 million mt in 2007, with only about 11 percent of that tonnage intended for
export, he said. At its current production rate, China could generate more than
1 million mt of stainless scrap in 2006, up from 900,000 mt in 2005, while its imports of stainless scrap would likely remain at the 2005 level of 200,000 mt.
India’s stainless production also is growing rapidly, Wright said. The 1.7 million mt produced in 2006 is expected to increase 22 percent in 2007, with further increases to 2.7 million mt by the end of 2010.
Turning to primary nickel, world consumption is expected to grow 4.3 percent by 2011, but supply should keep pace with demand, said guest speaker Peter Cutler of the Nickel Institute (Birmingham, England). The sharp increase in nickel’s price—from $13,000 at the start of the year to more than $30,000 in September and October—stimulated
stainless scrap availability in 2006. Wright attributed nickel’s price jump in part to
increased demand, but primarily to “heavy speculation in institutional investment buying.” Thus, he said, the inevitable collection phase will mean an “equally dramatic downturn” in the nickel price, which will
affect stainless scrap pricing. Overall, Wright characterized the nickel market as having “very healthy trading conditions, with a little cautionary note on prices and the final product demand,” noting that “when the price downward spiral starts, it will come at us pretty quickly and pretty heavily.”
Demand for titanium and other high-temperature alloys used in military and commercial aircraft remains high, said Stuart Freilich of Universal Metal Corp. (Worcester, Mass.). Demand for titanium and nickel alloy scrap might fall briefly due to production delays in
the Boeing 787 and Airbus A380 aircraft, though. Balancing the continuing demand, increased production of titanium sponge, and the increased availability of scrap, Freilich expected prices to stay at their current levels.
EXPERTS’ VIEWS MIXED ON NONFERROUS
At the end of the third consecutive year of record nonferrous prices—and with “extraordinary progression” in prices in recent months—Nonferrous Division President Marc Natan of Groupe Ecore (Rocquancourt, France) declined to predict how long the good times would last, instead saying the prices might have significant repercussions.
Michael Oppenheimer of Mountstar Metal Corp. (Biggleswade, England) reported “average” stock levels in Europe, but he noted that European nonferrous producers are having difficulty filling major new contracts. Aluminum scrap prices held up well despite the recent drop in ingot prices on the LME, a result he attributed to a strong domestic market. India, the traditional market for brass, has been “quiet,” Oppenheimer said, while China—and other countries—seem to have lost interest in European Honey. High zinc prices, meanwhile, are driving good demand in Italy, he noted.
Neverov pointed out that nonferrous scrap isn’t being exported from Russia because of high export duties—50 percent on copper and aluminum and 30 percent on nickel, for example. Despite European Union pressure, those duties aren’t expected to change, but the Russian government will most likely lift the 60-percent import tariff on primary aluminum, he said. If scrap is exempted from the VAT beginning in 2007, it might lower prices 10 percent to 12 percent. Given the direction prices and
demand are heading, Russia will someday become an importer of nonferrous scrap, which will affect European and world markets, Neverov predicted.
The nonferrous picture in North America is mixed, said Robert Stein of Alter Trading Corp. (Grand Rapids, Mich.).
High prices for copper scrap are leading to substitutions—as high as 25 percent to 35 percent in No. 1 copper wire and tubing—and thus to domestic surpluses. Continued overseas demand for U.S. No. 1 and 2 copper and yellow brass has helped balance the situation, however. Aluminum was having simultaneous good and bad markets, Stein said. Auto industry suppliers were suffering, but rolling mills still had steady demand through the year because of nonhousing construction, which is now starting to taper off. A slowing U.S. economy should
result in slower demand in the first few months of 2007, he said.
How much can China control its demand without overheating, wondered Michael Lion of Sims Group (Sydney, Australia). The demand for scrap should continue, he said, but the picture will become more complex. Copper looks “good,” with China’s scrap demand up to an estimated 1.4 million mt, Natan said. Aluminum is “more complicated,” Lion said, because China has reimposed import duties on secondary ingot, somewhat limiting the price potential. He noted that prices for mixed nonferrous shredder residue are “sustaining quite well” even though the product’s major component is aluminum. Overall, he said, “anticipate volatility,” noting that scrap prices have a large speculative
aspect and are influenced by the value of the currency and by “mood swings” of importers and consumers.
FINE DAYS AHEAD FOR FERROUS
The ferrous market weakened in July because of the halt in Chinese deep-sea scrap purchasing, said John Neu of Sims Hugo Neu (New York). When it became clear that supply and demand were in balance despite China, ocean freight rates strengthened again and pushed prices back up. Still, he said, world steel prices have been “steady at best to weaker,” with prices highest in the United States and lowest in China.
Neu does not expect China to return to deep-sea purchases of scrap until its blast-furnace production declines to 90 percent of raw steel production at most. Such a change could increase demand for other iron units, including scrap, by 22 million mt in the next year. Chinese steel producers are under extreme pressure to prevent losses, he said, so they can’t reduce production. Thus there’s a concern that Chinese steel exports will increase,
depressing prices in other countries.
Elsewhere in Asia, Southeast Asia continues to be an active buyer, though prices have declined slightly, Neu said, citing a recent price of $280 a ton for heavy melting scrap, down about $8 a ton from a couple of months earlier.
India has been actively buying shredded, he added, at prices in the mid-$290s.
Turning west, Neu said prices in Turkey were at $274 for heavy melting scrap, with sales fairly quiet during
Ramadan. He reported one noteworthy sale, from Finland, to a producer off the Black Sea coast at a premium price.
“The buyer obviously could not buy cheaper scrap from nearby Russia or Ukraine ports,” he said, which confirms expectations of reduced Russian and Ukranian scrap exports. With electric-arc furnace expansions underway in Turkey, Greece, and Egypt, Neu expects sharp increases in purchases from those countries. These and other expansions show that “scrap has not gone out of style,” despite concerns two years ago caused by the “gigantic increase” in
Chinese blast furnace-based plants.
The volatile U.S. market is evident in the fluctuating factory bundle results over the last four months, Neu said. “Obviously, this is representative of a market that has no clear direction,” he said, and it’s making many deep-sea, full-cargo buyers freeze. Rumors of substantial mill production cuts seem unfounded, he said, predicting cuts of less than 10 percent, primarily by blast-furnace producers, and “even these will occur slowly over a 90-day period.”
Even with the possibility of a small decline in factory bundle prices, Neu predicted that scrap prices would stabilize, with increases in December and January. “Overall, we have a very optimistic view of where scrap prices are going between now and when we all see each other in Athens” at the May 2007 BIR meeting, he said.
European crude steel production was on the rise in the first six months of 2006, said Anton van Genuchten of TSR GmbH & Co. KG (Bottrop, Germany), with 100.7 million mt produced in the 25 European Union countries, up 4 percent from 2005.
Germany saw a 4.8 percent increase in steel scrap consumption in the first six months of 2006, he said, and he estimated a similar increase in the EU25 total consumption, to approximately
53 million mt. European steel scrap
exports also grew in the first half of last year, up 15.4 percent, to 5.1 million mt, while scrap imports dropped 7.9 percent, to 3.3 million mt. Who’s buying? Turkey, with purchases up 124 percent in January-June 2006 compared with that period in 2005, to 2.4 million mt. Second is the United States, at 493,000 mt, up 9.3 percent, and third is India, which at 288,000 mt purchased 79 percent less than in this period in 2005. The biggest suppliers of steel scrap to
Europe are Russia, despite a 25 percent decline, at 1.5 million mt, the United States, Switzerland, and Norway.
Van Genuchten called steel scrap’s prospects in Europe “excellent” in 2006, with predicted records in both steel production, at 200 million mt, and scrap consumption, at 106 million mt. With forecasts of high steel production in the fourth quarter, he expected stable prices through the end of 2006 and
“upward pricing potential based on local shortages.”
Denis Ilatovskiy of Mair Joint Stock Co. (Moscow) predicted Russian ferrous scrap export declines of 3 million mt from 2005 to 2006 for several reasons: scrap collection has dropped, domestic and international price differences have narrowed, and domestic consumption
is on the rise due to new EAFs. He predicted Russian exports will drop to no more than 2 million tons “in the near future.” The predicted significant growth in Chinese steel production also might hurt the Russian metal markets, he said, because Russian metallurgy is less efficient and dependent on cheap energy and inexpensive raw materials. If so, he said, the country’s exports could
increase in three or four years to 5 million to 10 million mt. Ferrous Division President Colin Iles of European Metal Recycling Ltd. (Westbrook, England) called the projected 10 million mt drop in Russian exports in the next year or two a “fundamental shift” in scrap flows that could significantly affect the world market, with Turkey and the U.S. East Coast benefiting most.
ACHIEVING PURER FERROUS SHRED
Two guest speakers from Arcelor-Mittal presented the consumer’s perspective on quality requirements for shredded scrap, with one of the speakers—Philippe
Russo—asserting, “Scrap must be purified.” Copper is practically the only
material that mills don’t know how to remove from liquid steel, he explained, and its presence compromises the durability of steel goods,
cutting their lifespan in half. The maximum tolerance in many steel melts is 0.1 percent copper, though the tolerance in rebar production is higher at 0.5 percent. With EAFs using about 20 percent scrap steel, a purer ferrous shred is essential, he said.
The European E40 specification for ferrous shred allows 0.25 percent copper, but that’s not always the composition the mill receives, Russo said. Instead, the proportion reached 0.4 percent in 2005, most likely because of the effect of high prices and high export demand, said Arcelor’s Patricia Ayed. As prices and export demand fell in 2005-2006, and as mills increased their audits of and technical exchanges with ferrous processors, quality began to increase again, she said. Currently, only four of Arcelor’s 11 scrap suppliers consistently meet the 0.25 percent copper limit.
She warned that irregularities lead mills to order less E40 and replace it with other steel scrap grades.
Arcelor-Mittal ran a pilot shredder to explore how to reduce the copper content in shredded steel. Three successful strategies were hand-picking, predismantling (removing a car’s engine and gearbox), and reducing the shredder discharge grid hole to below 50-mm mesh. Separating automobile and household appliance scrap isn’t necessary, Russo said.
Promising post-shredding technologies include color-sorting and gamma-ray technology, though the latter can only tell you the percentage of copper, it can’t remove it, Russo noted. Better copper removal is good for both the steel mill and the scrap processor, he pointed out, because the copper is worth much more than the steel. Tony Bird, chairman of the European Shredder Group of the European Ferrous Recovery and Recycling Federation, noted, however, that processors cannot always recoup the extra cost of removing more copper with what mills will pay for E40.
PAPER LOOKS TO ASIA
China is and should remain the main destination for recoverd fiber in Asia, said Ranjit Baxi of J&H Sales International Ltd. (London) at the Paper Division meeting. Estimates show worldwide
recovered fiber exports to China increasing 11 percent in 2006, to 19 million mt. This figure would reflect export growth of 12 percent in Europe, to 5.1 million mt, and 15 percent in the United States, to 9.1 million mt. Within Europe, the United Kingdom, Netherlands, and Germany are the largest exporters of scrap paper to China, sending an estimated
2 million, 1.3 million, and 720,000 mt, respectively, in 2006. According to Baxi, global increases in collection volumes will find markets in Asia beyond China to India, Indonesia, Thailand, Vietnam, Malaysia, and South Korea.
North America is facing a “pretty bearish market” in recycled fiber for at least the next few months, said Michael Moulton of Koch Pulp & Paper Trading (Houston). At the same time domestic demand for finished paper products is down, consuming mills’ stocks of OCC 11 and ONP 8 are high.
Maarten Kleiweg de Zwaan, president of the European Recovered Paper Association (Brussels), noted the new goal of 66 percent paper recycling by 2010 set by the European Declaration on Recovered Paper. “Both recovered paper collection and utilization have grown faster than paper production and consumption” from 1998 to 2005, he said. ERPA has established a working group to revise and clarify the EN643 specifications for recycled fiber, looking to
ISRI’s “far more comprehensive” scrap specifications for guidance.
Merja Helander of Paperinkerays Oy (Helsinki, Finland) summarized the
European market situation. Overcapacity in paper and board production might lead to mill closures and less new
investment, she said. Further, recovered paper businesses are facing shrinking margins. Recovered paper prices were stable from August to September 2006, with increases in several countries compared with one year earlier. Consumption was stable as well, while recovered paper stocks were estimated at about
1.3 million mt.
EU TIRE RECOVERY RATES IMPROVING
The recycling of end-of-life tires in Europe is looking up, with 15 European countries reaching 90 percent or greater recovery rates in 2004, said Tire Committee Chair Barend Ten Bruggencate
of KCL (Alkmaar, Netherlands), adding that the average EU25 recovery rate is 80 percent. The continent has seen
significant growth in ELT material
recovery, from 6 percent in 1994 to 27 percent in 2004, and energy recovery, from 11 percent to 31 percent in that same period.
Guest speaker Frank Hopstaken of FFact Management Consultants (Rijen, Netherlands) told
of the Netherlands’ recent successes in ELT recycling. A reported 98 percent of tire producers and importers participate in the five-year-old system in which consumers pay 2E per tire and certified collectors get 1.25E for each tire whether for reuse or recycling. Of the 7 million ELTs collected, 40 percent are reused, 28 percent go to material recycling, and 32 percent to energy recovery.
Rising energy prices are leading to increased competition for resources, thus more tire recycling, especially as granulate prices edge closer to those of virgin material, Hopstaken said. The cost of
recycling tends to decrease when there’s a strong demand for resources, he added, but the costs are going up in the energy-consuming parts of the system. Hopstaken asserted that the Dutch government-run system doesn’t conflict with free-market tire recycling systems such as Germany’s, and it “will watch market developments closely and will use market principles when possible to profit.”
PLASTICS FACE REGULATION, EXPORT CHALLENGES
Recyclable plastics in Europe are over-regulated compared with their regulation in North America and Australia, said Plastics Committee Chair Surendra Borad of Gemini Corp. NV (Antwerp, Belgium). That said, such regulations are bringing new business concepts and opportunities to the continent, creating a bright future for plastics recycling, he said.
Looking at the European market situation, Peter Daalder of Daly Plastics BV (Brummen, Netherlands) said the Dutch and German markets were “reasonably balanced,” with slightly lower prices. Most reprocessors were optimistic, he said, because of good markets for regranulate. He noted a 25 percent decrease in shipments to Asia since spring 2006, in part because of slowdowns in the Chinese economy and falling oil prices. Less Chinese buying and increased collections are increasing the availability of secondary PET in France, said Jacques Musa of Soulier (Saint-Denis, France). Meanwhile, export challenges are plaguing Spain and Italy. Spanish recyclers have had difficulty meeting quality controls imposed by Chinese inspection and port authorities, whereas Italian customs authorities were forbidding the export of plastic film because it hadn’t been processed.
An Australia market report from Sims Group’s Lion noted the country is recycling only 15 percent of its plastics, with a target of 30 percent to 35 percent by 2008. Australia exports most of its plastic scrap to China, he said. According to Borad, China has stepped up its enforcement of import restrictions on low-grade plastics.
In India, 30 companies have just received five-year renewals on exclusive licenses to import plastic scrap for recycling, Borad said. The country imports about 100,000 mt a year, a fraction of the 3 million mt imported by China.
To Borad’s surprise, India’s plastic recycling companies have respectable environmental and workplace controls in place. To prevent the unlawful export
or dumping of wastes, vehicles are checked when entering and exiting a facility, and the companies must account for every kilo of plastics, paper stickers, and wires. Borad also asserted that “there is absolutely no child labor” in
India’s plastics recycling industry.
Guest speaker Honoré Paelin.ck of Port and Transportation Consulting (Antwerp, Belgium) addressed trends in ocean shipping containers. The outsourcing of manufacturing has led to dramatic growth in shipping worldwide, from 3.98 million mt in 1990 to 5.07 million mt in 1997, he said.
Shipping trends are leading toward the “battle of the boxes,” Paelinck said. Worrisome factors include the trends
toward larger vessels, with the largest reaching 14,300 TEU; trade imbalances, with Europe-to-Asia trade at only 60 percent of the volume of the reverse; and insufficient port capacity, complicated by the time, expense, and environmental concerns that slow new port
development.
Still, ports are expanding, perhaps more quickly than cargo volume, he said. This might result in lower tariffs in about two years as countries compete to bring traffic back to their ports. Larger ships with less frequent departures are good for the ship owner but bad for the cargo owner, who wants frequent, regular, just-in-time delivery, he says. “Large-volume ships in limited numbers of ports create serious problems” in port and land congestion, he said.
EXPLAINING INDIAN, CHINESE IMPORT REGULATIONS
Two of the hottest countries on the world scrap market, India and China, sent representatives to address trade issues at the BIR meeting.
Neeraj Kumar Gupta, India’s additional director general of foreign trade, discussed the country’s scrap import restrictions and the supplier registration regime it’s implementing as of April 1. According to Gupta, India imports more than $1 billion worth of scrap annually, and its only content restrictions are that unshredded scrap (1) must not contain explosive or radioactive material and (2) is subject to preshipment inspection. Shredded scrap imports are not subject to preshipment inspection, he said.
As of April 1, shippers must be registered with India’s Directorate General of Foreign Trade. Though registration closed May 31, 2006, Gupta emphasized that the government has no intention of restricting the number of exporters. It expects to reopen the registration process once it processes the current 1,400 applications.
Starting April 1, consignments from registered suppliers must be inspected to ensure they’re free of explosives, must enter through any of 26 designated ports, and must come with documents that name the exporter and the Indian importer. The new rules also will relax letter of credit conditions, but they will ban high-sea sales.
In evaluating company registration documents, Gupta said, “we’re looking at how stable a company is: Is it a member of ISRI or BIR? Does it have ISO certification? We want to ensure you’re a credible supplier of scrap.” Other documents DGFT will consider as signs of legitimacy include AQSIQ registration, a list of proprietors and directors, and an audited balance sheet or its equivalent. Further, DGFT is looking for details on “the countries from where you’re sourcing scrap [and] your technical capabilities for processing scrap,” Gupta said. “We want bona fide exporters, not a one-room, one-telephone-line office, suppliers with no standing.”
Fion Liu, subadministrator of CCIC North America’s Electronic Pre-Shipment Inspection Management System (E-PSI), admitted that the current Web-based system is “not very user-friendly,” but she said CCICNA is dedicated to improving it. The goals of E-PSI are to prevent the shipment of unqualified materials to China; make the inspection more efficient; make the application process quick, secure, and convenient; help applicants through Chinese customs more quickly and easily; and prevent fraud, which is “a very big problem,” she said. To receive an E-PSI password and user ID, applicants should contact their local CCIC branch office or e-mail
waste@aqsiq.gov.cn.
Rachel H. Pollack is editor of Scrap