Disputes disrupt global nonferrous scrap trade

Speakers at the Bureau of International Recycling (BIR) World Recycling Convention (Round-Table Sessions) in London in early October frequently brought up the topic of tariffs throughout the metals-oriented meetings. The consensus among the committee members of the Ferrous and Nonferrous divisions as well as their guest speakers was that the U.S. Section 232 tariffs on steel and aluminum imports injected an additional level of unpredictability into markets for these metals.

Edward Meir, director of Connecticut-based Commodity Research Group, said tariffs “will create more problems than they will solve,” adding that they are “a very blunt instrument and can give a lot of unintended consequences.”

Meir addressed the Nonferrous Division plenary meeting at the BIR event.

Describing the Trump administration’s trade policy as “dangerous and built on faulty assumptions,” Meir said the tariffs could “chill” business investment and lead to the cancellation of projects.

“U.S. scrap has been a big casualty” of the most recent round of tariff activity, which saw China retaliate to U.S. tariffs on Chinese goods by imposing tariffs on imports of U.S. scrap, among other goods.

Looking ahead to 2019, Meir predicted aluminum prices would trade between $1,910 and $2,380 per metric ton, assuming a resolution of the Rusal issue. (The U.S. threatened to place secondary sanctions on the Russian aluminum company starting Oct. 23. However, the U.S. Department of the Treasury’s Office of Foreign Assets Control announced Oct. 14 that it had pushed back that date to Dec. 12.)

As for copper, he forecast a price range of $5,600 to $7,200 per metric ton so long as there is some form of “truce” in the current trade war.

In his review of world markets, Mogens Christensen of H.J. Hansen Recycling Industry Ltd. in Denmark said the U.S.-China dispute was damaging scrap trade into China. China’s import restrictions and the ongoing trade war with the United States have translated into more American aluminum scrap finding its way to Mexico’s secondary smelters, he said. Meanwhile, India’s importers have been “hit hard” by the decline in the value of the rupee.

Prefacing a panel discussion on the topic of “Politics and recycling: a new era,” the session’s moderator Murat Bayram of European Metal Recycling Ltd. said rising protectionism has contributed to the “earthquake” currently rocking the scrap sector. He shared the view expressed by Nonferrous Division President David Chiao of Uni-All Group Ltd., Atlanta, that China will “very likely close its doors” to nonferrous scrap imports by the end of 2020.

Michael Lion of Everwell Resources Ltd. in Hong Kong acknowledged the “extremely unpredictable” situation that currently prevails, with “too much scrap in the wrong places.”

The secondary industry in the United States cannot cope with the material now available, and some companies have been left with no choice but to move volumes for lower prices to maintain cash flow, said Andy Wahl of TAV Holdings Inc., Atlanta.

Dhawal Shah of Metco Marketing (India) PVT Ltd., Mumbai, said India’s automotive sector is the country’s largest consumer of secondary materials, with demand growing at some 10 percent annually. However, he warned attendees against regarding India as the natural beneficiary of the changes taking place in China.

In its “Weekly Market Report” email dated Oct. 22, the Institute of Scrap Recycling Industries (ISRI), Washington, reported that falling aluminum stocks at the Shanghai Futures Exchange assisted in supporting prices, citing a report from ABN AMRO, a Dutch bank headquartered in Amsterdam. Aluminum inventories on the exchange declined by 22,001 tons to 820,675 tons as of Oct. 19 compared with the previous week. “But that support proved to be short-lived and LME (London Metal Exchange) aluminum prices are down just over 10 percent for the year to date,” according to ISRI’s “Weekly Market Report.”

“[Tariffs] will create more problems than they will solve.” – Edward Meir, Commodity Research Group

Aluminum scrap demand from China also has declined. ISRI cites figures from U.S. Census Bureau trade data that point to a 31 percent decline in aluminum scrap exports from the U.S. to mainland China through August. Shipments to Hong Kong were off by 26 percent.

ISRI notes that aluminum scrap exports from the U.S. into Mexico increased by 21 percent during that period. South Korea also saw 37 percent more aluminum scrap shipments from the U.S. through August. These gains pale in comparison, however, to those seen by Malaysia, India and Indonesia, which increased 366 percent, 145 percent and 122 percent, respectively, according to ISRI.

In the stainless steel sector, global output increased 7.6 percent in 2017, but Jim Lennon, senior commodities consultant at U.K.-based Macquarie Capital (Europe) Ltd. said “a turning point” had been reached and the rate of increase likely will slow to 3.4 percent in 2018 and 2.6 percent in 2019. Lennon, the guest speaker during the BIR Stainless Steel & Special Alloys Committee meeting at the organization’s fall gathering, added that the “protectionist phase” in the stainless steel market is making forecasting future developments more difficult.

Nickel pricing has trended upward in recent years propelled by demand growth for stainless steel. Lennon also said nickel use in batteries is growing 30 to 40 percent annually.

Lennon described nickel price volatility as “pretty intense,” adding that he did not expect that to change in the near term.

Nickel is in structural deficit, he said, but overall stocks remain high despite a recent “dramatic” decline.

Lennon said Indonesia is emerging as a key player in the nickel and stainless markets and could account for roughly one-quarter of global nickel supply this year.

Regarding global nickel use in stainless steel production, he said nickel scrap will grow from 904,000 metric tons in 2017 to 945,000 metric tons this year. He predicted it would reach 983,000 metric tons in 2019.