Dodging the Raindrops

Mathematicians insist that we have not yet entered the new millennium, so recyclers can still hope that a brighter era for their industry will dawn on Jan. 1, 2001.

As it is, the good news is that the turning of the calendar to the year 2000 did not bring with it missiles leaving silos or a worldwide breakdown of the power grid. The bad news is, it brought more of the same market conditions that have held down the prices for many recyclable commodities.

Demand remained strong for many commodities, but even for some of these an ample supply flow kept pricing in check.

Iron Markets Corrode

For scrap recyclers whose fortunes are tied to the ferrous market, 2000 proved to be another disappointing year. Per ton pricing surged in January, and stayed fairly strong through the first four months of the year.

But a series of price decreases began in May and continued into November, bringing mill buying prices for ferrous scrap down to almost the same depths it had seen in late 1998 and early 1999.

The soft ferrous market was cited by publicly traded companies involved in the scrap industry as a key reason for slim or negative earnings. Metal Management Inc., Chicago, became the third of the three aggressive scrap consolidators to file for bankruptcy, making its filing in November of 2000.

Some scrap recyclers are questioning whether fundamental changes in the market have occurred, forcing them to adjust both their expectations and their operating methods. “It has been an interesting and challenging market,” says Sam Hummelstein, president of Hummelstein Iron & Metal Inc., Jonesboro, Ark., and chairperson of the Institute of Scrap Recycling Industries Inc. (ISRI), Washington.

“Change is now an inevitable component of our lives,” says Hummelstein. “How we choose to react to that change is more important than the change itself.”

The globalization of the market—including the ability of mills to seek out low-cost scrap and scrap alternatives from every corner of the world—is one of the factors prompting the changes.

“All the rules my Dad taught me don’t necessarily work on their own anymore; they’ve been joined by new rules” says Hummelstein. “ ‘Just a high operating rate’ or ‘just a reasonable world economy’ on their own are no longer enough. It’s a very cyclical business and some people in our industry are going through major challenges. But the industry will survive because there are still consumers who have a demand for our product, and there are still suppliers who can be fair, direct, maintain their quality and provide that product. Long-term, I’m optimistic.”

Nonferrous Ups and Downs

In comparison to ferrous scrap conditions, dealers and processors of aluminum and copper scrap had less turmoil to contend with.

“Overall it was a good year,” says Jeffrey Mallin, president of Mallin Bros. Co. Inc., Kansas City, Mo. “Any time you get COMEX pricing for copper that stays in the 80s, that’s very feasible and keeps the mentality of the scrap traders working,” he remarks.

Mallin adds that the “last couple of months have seen the demand for aluminum and copper head down. I think the general economy is slowing down.”

Seasonal factory production shut downs are also playing their customary role in the year-end market, especially on the aluminum side. “On the selling side for aluminum there are difficulties right now,” says Mallin.

The nonferrous metals recycling industry remains a competitive one, says Mallin, with global competition playing a bigger part. “We have seen more competition from the export market. They have done a good job in going to dealers and in buying oddball items as well as insulated wire.”

The upside of the global economy is that overseas consuming mills provide a broader market to sell into, albeit a spot market. “The export market has really affected the stability of the red metals side to some extent.”

Heading into 2001, Mallin believes the first quarter will see continued slow conditions, but that the economy should regain strength as the year progresses. “Once the winter is over and we get some stability in our government, the financial markets and the commodity markets will respond. We just need to be patient in the first quarter of the year,” Mallin predicts.

A Split Paper Personality

To try to describe the overall scrap paper market is proving to be a difficult exercise. Throughout much of 2000, there was a noticeable lack of harmony in the price movement of paper stock grades.

“Instead of a bad year or month for all grades, we’ve seen low grades up and high grades down, for instance, and even micro-movement where some low grades might be up while others are down,” notes Pete Grogan, manager of market development for Weyerhaeuser Recycling, Federal Way, Wash.

The affects of globalization are again pointed to as a reason for changes in the recycling industry. “International markets may have something to do with this, such as Mexico creating good dynamics for high grades but not for low grades,” says Grogan.

Given the task of trying to gauge the overall secondary fiber market, Grogan described 2000 as “a little bit like the marathon runner who starts out too fast. We had a pretty strong first half, but then things slowed down and demand internationally somewhat moderated.”

Kevin Little of Lake Erie Recycling, Toledo, Ohio, echoes Grogan’s description. “The year has been good, but the last quarter and a half has been much tougher because of the lower prices.”

The lower pricing is also joined, in some cases, by a lack of movement. “During the last quarter, if you handle a lot of corrugated and you don’t have contracts in place, you don’t have a place to go with your materials,” says Little. “A lot of suppliers not under contract with a consumer have been cut off.”

Grogan believes international buying and selling will continue to exert influence, as nations such as China, India and Mexico increase their production of paper and consumption of secondary fiber. “The Chinese demand is here to stay,” he states. “China is moving into a much more modern or westernized approach to tissue and toweling.”

Suppliers Seek New Markets

Suppliers of equipment and services to the recycling industry also felt the impact of another disappointing year in key North American recycling markets.

Several equipment makers have reportedly laid off production workers and other staff members as a response to stagnant or declining equipment orders.

Used equipment from a variety of sources—failed companies and consolidated, companies most notably—is providing stiff competition for many manufacturers.

Despite the difficulties, not every company was disappointed with its 2000 results. “We have had a record year in terms of sales,” states Erik Eenkema van Dijk of Van Dyk Baler Corp. and Lubo USA, Stamford, Conn. The company sells Bollegraaf baling systems and Lubo sorting equipment to the North American market.

The company’s sales pattern mirrored much of the recycling industry’s fortunes in the year 2000. “The first six months, we sold more than all of 1999 combined, but the second six months slowed down a little,” says van Dijk.

This year was especially good for the sale of separating and screening equipment, says van Dijk, with orders for single-stream systems and components, and screens to separate the old newspapers and old corrugated grades being especially healthy.

Scott Williams, a vice president with Harris, Peachtree City, Ga., says sales into the ferrous equipment market were tough in 2000, but that the company has stayed active in other markets. “I think that what happened in the markets has forced Harris to be more creative in what we offer to our customrs, and to find new markets for our products.” Williams cites textiles and construction and demolition recycling as additional segments the company is focusing on.

Hanging on for the Ride

Although there is some optimism concerning 2001, recyclers are well aware of the unpredictability of both the business cycle and the commodities markets.

For long-time recyclers like the Hummelstein family, the need to prepare for the down portions of that cycle has been well known for some time.

“I got married in 1973, which was a good year for scrap,” recalls Sam Hummelstein. “My mother warned my wife, ‘don’t get used to it, because things in this business change in a hurry.’ And she was right, because 1974 was one of those down years.”

Even with all the changes that are occurring, a shift toward price stability is one change that no one is predicting.

The author is the editor of Recycling Today.