Canadian Market Rides Recovery Wave

Although both markets face similar obstacles and misperceptions, Canadian scrap recyclers have enjoyed the same recovery as their U.S. counterparts.

Scrap metal recyclers and market analysts in Canada agree that most Canadian citizens, and even Canadian legislators, have only a dim idea of what the industry is about.

"When the public thinks about recycling, it thinks blue box programs," says Brian Smith, a metals recycling commodities specialist in Canada’s Department of Natural Resources. "Most people are unaware of the highly efficient and effective commercial scrap metals recycling industry that has been in operation for decades. Even a legislator unfamiliar with the industry would probably view a pile of what could be a million dollars worth of scrap metal as waste. The industry has to do a better job of educating the public about its role in recycling."

Maxwell Zalev is president of Zalev Brothers Ltd., a scrap processor based in Windsor, Ontario, and president of the Canadian Association of Recycling Industries. Operating just across the border from the major U.S. industrial center of Detroit, Zalev sees a lack of understanding on either side of that line. Ferrous scrap metal is the most recycled commodity in the world, he notes. "Without it, there would be no steel industry in North America, and the same can be said for other metals. Our industry brings tremendous benefits to North American."

The Canadian scrap industry rode the same wave in 1994 that buoyed its American counterparts, and markets have been equally buoyant in the early months of 1995. Bob Kneale, operations manager for Mandak Metal Processors in Selkirk, Manitoba, and a CARI board member, reports that the industry in Canada is presently healthy and most companies are working to capacity.

The North American and world recession of 1991 and 1992 are a thing of the past. Statistics from the Canadian DNR set total trade in the Canadian scrap industry in 1993 at 4.2 million metric tons valued at about $2 billion -- about a third more than in 1992. Ferrous metals accounted for almost 75 percent of that trade (although only 22 percent of the dollar value), or 3.1 million metric tons. The United States, Canada’s largest trading partner, accounted for 92 percent of the imports and exports.

According to Smith, the Canadian scrap industry employs 16,000 to 20,000 people across the country with about two-thirds in Ontario and Quebec. "A large part of the industry is in fact comprised of small family-run businesses," he points out. "There are easily over 1,000 companies involved. Some may be very small but they are still counted."

Zalev, whose own company processes over 500,000 metric tons of ferrous and nonferrous scrap annually, emphasizes the importance of the smaller companies. "It is the little guy who makes this business work," he says. "Especially in the smaller centers, they are a very important part of a sophisticated collection system that is operated on a simple basis. The initial collector may just be a guy with a pickup truck."

Albert Solsberg is one of those "little guys." The long-time operator of D.J. Metal in Saskatoon reports the metal market is the most buoyant he has seen in years. He reports he was recently offered $1.30 (Canadian) a pound for No. 2 copper.

"There is a lot of activity," he says. "More and more people are recycling."

Zalev reports that the strengthened demand for steel in North America has continued into 1995, spurred by the opening of several minimills in the United States that use steel scrap as their primary supply source. The weak Canadian dollar has helped make Canadian scrap metal recyclers’ products very competitive in the United States.

"There are 14 to 15 million metric tons of additional steel capacity on schedule to 1997 in the United States," he notes. "In Canada, technology will create some increases."

However there are currently no firm plans for any new mills in Canada. John Kis, vice-president and general manager of Intermetco’s metals recycling division, reports that Defasco may be planning to close one furnace and replace it with another, but no final decisions have been made.

"We are pleased that there have been no closings," says DNR's Smith. "Steel consumption at the mills last year was a little over 8 million tons based on 15,000 tons of raw steel products. Almost 50 percent of the raw material used was recycled scrap. We expect to see much the same numbers for 1995."

The demand for nonferrous metals, especially aluminum, has increased due to a combination of industrial demand and international pressures. The multi-national memorandum of understanding, which called for significant curtailments to aluminum production worldwide, Zalev notes.

Industrially, thriving auto and construction industries in Canada in 1994 spurred demand for scrap metal. However, Zalev cautions that blips are starting to appear in this rosy picture.

"Pressure from the Federal Reserve and corresponding interest rate increases in Canada are starting to affect consumer buying," Zalev says. "Auto plants in southern Ontario and Detroit shut down production for a couple of weeks in February. We will have to wait and see what car sales are like in the first quarter of 1995 to have an idea if our current levels of production in our industry can be sustained during the second half of the year."

The industry witnessed some softening in February, which Zalev attributes to a number of factors. One factor has been a mild winter. Also, the shortage of railcars, especially gondola cars, has had an added effect.

"The railways shifted away from that business as demand for freight increased and didn’t replace the old cars," Zalev explains. "As well, a number of industries have been hoarding railway cars for their own uses because it is cheaper to shunt materials around on their own cars than give the cars back. The railways are proposing punitive tariffs on industries that are not willing to return the cars."

Zalev also notes that the steel mills may have hedged their bets in backing off from buying in January out of concern over the potential economic effects of the Canadian government’s growing deficit and the threat of Quebec voting to separate this year.

Unlike most scrap metals, however, the lead market is unaffected by fiscal or political uncertainty or market fluctuations. Paul Higgins, a metals buyer with Tonolli Canada Ltd., Mississaugua, Ont., notes that the value of used lead acid batteries is so low that people don’t bother hoarding them to wait for prices to go up. A two-cent-per-pound increase would be a substantial one for this market.

"Up to 98 percent of used batteries are recycled," Higgins reports. "We have been on a roll the last two years. Prices, demand and supply have all been reasonably good."

He notes that Tonolli buys scrap batteries, melts and refines the lead -- a very small part of the nonferrous scrap metals industry, he admits -- and sells it back to battery manufacturers in Canada and the United States.

He sees very little growth potential for lead-acid battery recycling. "This is a very mature industry," he says. "There are no new applications. Maybe there will be some small growth as the population grows. As well, with the advent of electric cars, there may be some growth in a transitional period until electric batteries are developed."

The big success story in the Canadian scrap metals industry is aluminum. Alcan Recycling’s Jim Dixon reports that the Brampton, Ontario-based subsidiary shipped more than 50 million pounds of aluminum last year to Alcan remills in Oswego, New York; Berea, Kentucky; and Greensboro, South Carolina. The figure represents a 20-percent increase over 1993.

The catch is that the high resale value of used aluminum beverage containers has encouraged the bottling industry and municipalities across the country to do their own processing. Aluminum was trading at more than $1 (Canadian) in early February. Four years ago, Dixon says, Alcan bought recycling businesses in Brampton, Vancouver, and Lachine, Quebec. The three plants collected beverage cans and served as intermediate processing centers.

While the Quebec operations continue to process UBCs for the major soft drink bottlers, the role of the Ontario and Vancouver operations have changed. Last year, the bottlers in Vancouver decided to do their own processing, says Dixon. "We are still active in acquiring UBCs and promoting recycling in western Canada," he notes.

In Ontario, Dixon reports a lot of aluminum on the market, thanks in large part to the province-wide blue box curbside recycling program. Once again, Alcan Recycling’s role has changed to one of strictly collection as municipalities have adopted their own baling and processing equipment.

While scrap metals are the most lucrative materials to recycle, they represent just a portion of the recycling stream. The problem Canadian cities have with municipal recycling programs lies in the lack of end markets near at hand. The success stories are aluminum cans, plastic pop bottles and beer cans, which in most provinces are collected through deposit systems.

Helen Spigelman, director of communications for the Recycling Council of British Columbia, notes that higher market prices for commodities are having a major impact on municipal recycling programs. For some materials, she notes, the municipal operations are much closer to cost recovery.

In a large urban area such as Vancouver, for example, she reports that curbside recycling programs are finally beginning to pay off. In rural areas, however, there are still costs incurred by collecting and recycling material. Some rural areas are not collecting steel cans because of concern over shipping costs.

One issue under debate is who pays for recycling. As Spigelman notes, Canada’s three most westerly provinces and several American states have a deposit refund system in place on aluminum cans, plastic pop bottles and steel cans. Canada, she says, is farther along in the philosophy of industry stewardship.

"Proposals are being considered to shift the cost of recycling from the taxpayer to the manufacturer," she notes. "British Columbia is more advanced than other provinces in this area. A task force here is trying to determine the appropriate levels of support to be expected from the manufacturers. The province’s goal is a 50-percent reduction in waste material by the year 2010."

In Manitoba, the fourth western province, only beer bottles carry deposits. Since 1987, the province’s soft drink bottlers have been operating their own collection system, Manitoba SoftDrink Recycling Inc. Based on American models, MSDR buys used aluminum cans and plastic bottles at prices based on weight.

However, whereas beer bottles have a 98-percent return rate under the deposit system, MSDR’s rate of return runs in the 50-percent to 60-percent range.

Unhappy with the results, Manitoba’s provincial government has hit the soft drink manufacturers and distributors with a two-cent a bottle levy on every bottle sold in the province as of January 1.

The government hopes to raise $5 million (Canadian) in the first year and $8 million a year after that when the levy is extended to other recyclable material. The money is to be earmarked to help municipalities finance recycling programs.

Although the levy was theoretically supposed to be paid solely by the bottlers, the Minister of the Environment has expressed considerable surprise and disappointment that the industry has passed on the levy to the public by raising retail prices.

"Industry stewardship programs are being discussed for a number of products as the provinces try to deal with the problem of solid wastes," says Alcan Recycling’s Jim Dixon. "Regulations are in a state of evolution and will have an impact on packaging materials."

Outside of the mature scrap metal segement of the recycling industry, the market for recycled products is still at a very early stage, according to Maxwell Zalev.

Canadian recyclers fight the same battles of misperception as their counterparts in the U.S. The uninitiated tend to label scrap metals as waste, and in so doing attach a negative stigma to the material, notes Smith. Provincial and federal government policymakers consequently lump recyclable scrap metals under regulations meant to control handling and disposal of other wastes.

"In Canada, each province has its own regulations governing the metals recycling industry as well as hazardous waste," Smith explains. "The federal Department of Natural Resources does not believe that recycled metals destined for recycling operations should ever be considered as waste materials. Rather, the Department considers them to be raw material products essential to many Canadian metallurgical facilities."

Some of the provinces, however, have a different view. Recyclable materials are considered wastes, by their standards. If there are any hazards associated with them, they are labelled hazardous waste.

Each province has differing regulations for recyclable metals. Ontario, for example, will exempt from regulatory control any recyclable metal deemed hazardous if it is being shipped directly to use in industry. Other provinces control hazardous waste more strictly.

In the United States, by comparison, Smith notes there are blanket exemptions for certain metals and materials, such as lead-acid batteries, to help their movement around the country and thereby promote recycling. Canadian legislation, in place since 1992, has no provision for similar exemptions.

Tonolli Canada’s Higgins views the regulations effecting the lead-acid battery business as a "thorn in the side" but also a fact of life.

"We are very tightly regulated," he says. "There are stack tests to test for emissions, waste water testing and air monitor testing. Our employees have to have regular blood tests for lead levels. The regulations in our industry are similar to American regulations, but I believe the U.S. regulations are tighter. Our standards are probably a few years behind."

As the years go on, though, standards are tightening, Higgins observes. Solsberg agrees, noting the example of Saskatchewan, a province with very strict rules about shipping lead-acid batteries out. They must be in proper containers, and large fines await anyone deemed responsible in the event of a spill.

Maxwell Zalev agrees that Canadian and American regulations are similar. "The major differences are in how they are applied from state to state and province to province. We in the industry have to do our best to educate regulators and politicians and anyone else who will listen. We have to explain how our operations are environmentally friendly. We have to be proactive and anticipate new regulations before they are forced on us."

As the industry moves into the 21st century, Zalev predicts that scrap metal processors will have to continue to pour capital into infrastructure and keep their facilities up to date, especially in the area of environmental compliance.

"Smaller processors will have a difficult time managing capital expenditures," he says. "It will depend though on how quickly the environmental movement on both sides of the border push regulatory reform. That type of decision is a quasi-political one."

Al Solsberg agrees that the future belongs to the larger, more sophisticated companies. "In many cases, recycling is too labor intensive right now," he says. "You need technology to be able to handle more and different materials more economically."

As the economy continues to strengthen, Intermetco’s Kis predicts a good year for the industry in 1995.

Zalev sees recycling on the whole as a growth industry. Materials will be changing over time and markets are bound to develop to help recyclers, he notes.

"I believe the consumer more and more will buy recycled products. That will create markets for materials other than metals, materials such as tires and plastics and, to a lesser extent, paper."

It is easy to make a case for recycling, adds Smith. He hopes future regulations foster more recycling.