Conventional wisdom

The Mandalay Bay Convention Center in Las Vegas served as the gathering place for several thousand recyclers in early April, who met there for the Institute of Scrap Recycling Industries (ISRI) 2016 Convention & Exposition (ISRI2016).

The event, as it does every year, offered an exhibit hall full of recycling and material handling equipment, networking areas where old friends gathered and new contacts were made and a roster full of sessions focused on secondary commodities and recycling industry trends.

Volatile commodities pricing was among the topics of discussion at sessions, along with the presentation of new recycling opportunities, concerns about ongoing challenges and questions about what lies ahead for some end-of-life products.

HEDGING ONE’S BETS

At the Spotlight sessions for the most commonly traded scrap metals (ferrous, aluminum and copper), the role of hedging as a risk management tool was prominently featured in 2016.

Reviewing the state of aluminum in 2015 and early 2016, ISRI Director of Commodities Joe Pickard noted that London Metal Exchange (LME) pricing was down in March 2016 but was up 1.4 percent year to date. The price “changes day to day,” Pickard said, which is one reason new trading contracts for the light metal have been introduced.

Another reason to consider hedging aluminum scrap trades against a contract, Pickard said, might be forecasts that are calling for the metal to fall in value from its 96-cents-per-pound level in March 2016 to the 61-to-70-cents-per-pound level later in the year.

Panelist Fred Penha of the CME Group, Chicago, said the firm has been “building out” its group of aluminum contracts so scrap recyclers can work with fixed pricing on the buy and sell sides.

He said CME’s new Aluminum Midwest (AUP) contract has been gaining adherents and CME’s metals division was involved in “100,000 metric tons of hedging just last week (the final week of March).”

Penha touted the CME’s warehouse network for physical metal storage (with locations in Chicago, Detroit, Baltimore, New Orleans and in Owensboro, Kentucky) as being readily accessible. “You can get your metal out in a few days [with] no long queues,” he said, likely referring to complaints that have been made about the LME warehouse in Detroit.

Andre Marshall of Crunch Risk LLC, Houston, said even more volatile than pricing in the aluminum scrap market has been the fluctuating spread in the Midwest Premium (the cost of shipping aluminum from LME warehouses to locations in the Midwestern United States).

He said the market uncertainty is likely to lead to more inquiries from scrap traders to risk management service providers such as Crunch Risk. “Companies come to us because they have something they want to hedge. It’s a learning process, it’s not a switch you just turn on.” Penha added that the CME, likewise, hosts tutorials, webinars and seminars to familiarize new users with hedging.

Although hedging has never secured a place on the ferrous side of the scrap business as it has for aluminum or copper, “2015 was a wake-up call kind of year,” Spencer Johnson, a New York-based risk management consultant with INTL FC Stone, said about the ferrous scrap market in the United States. He added, “A [rapid] $100 per ton drop can cause a real sea change.”

Johnson urged ferrous scrap recyclers to consider the new hedging opportunities being made available in the market, saying, “Risk management is an underappreciated aspect of the ferrous scrap business.”

He said the LME steel scrap contract is ideal for recyclers in the eastern U.S. who ship scrap to Turkey or who otherwise compete in the same market. Recyclers farther west, on the other hand, may be better served by hedging against the Nasdaq’s U.S. shredded scrap contract.

The ongoing integration of the ferrous and nonferrous scrap industries may well be the critical factor in allowing one or both of the contracts to catch on with recyclers—unlike many similar contracts introduced in earlier decades. “The industry can borrow a lot of the same concepts and knowledge it uses on the nonferrous side for ferrous hedging,” said Johnson.

A key factor, he said, is for the industry to find a benchmark price that grows to be as trusted as the COMEX copper price. He selected The Steel Index (TSI) U.S.-to-Turkey price as one candidate.

WE CAN DO THIS

Upgrading the quality of scrap paper shipments was the focus of a session for attendees operating in that recycling sector. Improving the quality of recovered fiber bales can help to strengthen the overall secondary paper industry, according to panelists at the session, titled “Spotlight on Paper: Addressing Paper Bale Quality.”

When curbside recycling programs switched from dual-stream collection to the existing single-stream method, the change came with many problems, according to some panelists.

Recovered fiber bale quality has taken a step backward in recent years, said Johnny Gold, president of The Gold Group Recycling Consultants LLC, Swampscott, Massachusetts. Gold’s remarks were read by session speaker Sandy Rosen, as Gold, who was to serve as the session’s moderator, was unable to attend the event.

Rosen is the outgoing president of the Paper Stock Industries (PSI) Chapter of ISRI and also serves as CEO of Great Lakes Recycling, Roseville, Michigan. He introduced incoming PSI President and fellow speaker Myles Cohen. Cohen most recently served as vice president of PSI and is currently president of Pratt Recycling, Conyers, Georgia.

Rosen said it will take education and effort to improve recovered fiber bale quality standards. “By increasing awareness and talking about ways to improve quality, then we as an industry will benefit as a whole,” he added.

“If we as an industry identify higher quality has a higher value,” Rosen said, “then that additional revenue will encourage other processors.”

Talking among buyers and sellers is most important, he said. Retaining relationships and having continual conversations is what it takes to maintain not only good business but also good quality.

“You can’t just ship a load and think everything’s going to be OK,” Rosen said. “I believe increasing quality strengthens us as an industry.”

As a broker, Leonard Zeid, with Midland Davis, St. Louis, said he hears from people on both sides of the sales equation. “And one of the things we hear is from the supply side, and it seems like the strike zone on quality can be a moving target in the middle, depending on whether it’s June or December,” Zeid said.

He continued, “It takes communication between the buyer, seller and broker to understand what those quality concerns are.” Zeid added that it is importatnt to know what you are selling and clearly communicate that information. Feedback is good for mills, he said.

In his prepared comments, Gold said now is as good as any time to get ahead of the quality issue. “It’s time to feel safe about shipments,” he said. “As an industry, we need to improve quality.”

THE FIX IS IN

Recyclers who collect end-of-life electronics and who want to expand into the repair and reuse market have numerous online resources to tap into, according to presenters at a session in the electronics portion of the program.

Sarah Cade of Chicago-based PC Rebuilders & Recyclers (PCCR) and Jim Lynch of San Francisco-based TechSoup listed a number of Internet-based information sources that can help those venturing into the computer or mobile device refurbishment sector.

Online refurbishment manuals posted to www.iFixit.com are available at no charge. Cade and Lynch praised the website’s managers for the body of knowledge collected, their responsiveness to create new manuals and the quality of the disassembly tools sold through the website.

The Repair Association, managers of www.repair.org, provides repair community advice and discussions and also serves as an advocate for the right to repair, according to Cade. The association’s interests include computers, mobile devices and computer-diagnostic automotive repair.

Lynch said TechSoup’s website, www.techsoup.org, provides product and brand-specific guidance on repairs. TechSoup advocates for widespread electronics repair from environmental and economic perspectives.

On the software side, Lynch said Microsoft has long been supportive of the reuse market, offering affordable licensed versions of the Windows operating system and accompanying software to refurbishers. Apple, he indicated, has been much slower to respond to the repair and reuse market.

Panelist Chris Ko of Revive IT, with locations in Phoenix and Memphis, called refurbishing “an art, not a science,” but said those who get it right can achieve “astronomical” profit margins compared with reducing all collected equipment to secondary commodities.

He said the process consists of acquiring material, assessing its value, testing and cleaning it, documenting inventory, bringing it to market and shipping it. The testing process, Ko said, can be as simple as “powering on the device” to see whether it is in working order. Companies seeking to do more complicated testing will need to hire trained or trainable technicians.

Craig Boswell of Batavia, Illinois-based HOBI International Inc. said that with the United States having some 182 million smartphone users and some 2.45 billion mobile devices shipped worldwide in 2015, the size of the refurbishing and repair market for devices is considerable.

Boswell said data security is increasingly important, with this factor helping to reduce the attractiveness of donating phones to charity.

Partly as a result, many device owners simply store their old phones in drawers, with Boswell citing one estimate that 57 percent of American device owners have one or more idle cellphones in their home.

The collection business model likely will change further, he said, as service providers shift toward leasing smartphones rather than selling them outright.