In High Spirits

Despite the effect the current recession is having on many recyclers, attendance at the Institute of Scrap Recycling Industries Inc.’s (ISRI’s) 2009 Conference and Exhibition, held in Las Vegas April 26-31, was the second best in the conference’s history, according to the event’s organizers.

Despite the overall gloom, many attendees displayed a degree of bullishness about the industry and appeared to embrace the conference theme, "Change."

ISRI Chair George Adams, SA Recycling, Anaheim, Calif., noted, "2008 will go down as a year that was all about change," referring to the dramatic shift in business since the fourth quarter of 2008. He added that the opportunities that come with market downturns are not always obvious, though he assured attendees that they existed, citing the American Recovery and Reinvestment Act as one possible source.

More than one recycler in attendance said markets would bounce back (though no one was sure when that would be), and attendees were able to benefit from a number of sessions on a range of topics, with the commodity-focused sessions generating considerable interest.

During the Chair’s Breakfast General Session, Kendig Kneen of Al-Jon and the ISRI convention chair, said attendance, while down from the 2008 show, was the second largest in the conference’s history. More than 4,300 attendees registered for the show.

During ISRI’s "Spotlight on the Economy" session, Wednesday, April 29, Michelle Applebaum, a steel industry researcher based in Chicago; William O’Neill, managing partner with Logic Advisors, Upper Saddle River, N.J.; and Brian Wesbury, chief economist with First Trust Advisors, Wheaton, Ill., and a CNBC contributor, wrangled over the status of the U.S. economy, especially in regard to metals.

Wesbury displayed significant bullishness during the Q&A period, as he noted that the economy had already bottomed out and had been in recovery mode for the past several months. He defended the "V" shaped recovery, listing a number of macro-economic indicators, including increased retail sales and a significant drop in inventories, helping to rally the market.

O’Neill displayed more caution, noting that while the worst part of the economy has passed, the recovery would resemble a "swimming pool," with a much longer stretch of flat markets before the economy saw a sharp increase. "The worst of the price drops is over," he said.

O’Neill said he saw continued extreme volatility, with a housing recovery not possible until the second quarter of 2010 at the earliest.

Applebaum was bearish, targeting the problems with the steel industry. "I don’t see a lot of good going on," she said, noting that domestic steel producers had shown a steep drop in production throughout the past several months.

China’s steel mills continue to be such significant producers of steel that a recovery in the U.S. steel industry would depend on how China handles its economy, Applebaum said.

Echoing her sentiments, panelists at ISRI’s "Ferrous Spotlight" session did not predict a quick return to early 2008 boom markets, but their forecasts about the market’s future were mixed.

Steel industry analyst Charles Bradford of Bradford Research, New York, said he saw signs that a multi-level inventory overhang was beginning to draw down, which should be good news for steelmakers and scrap dealers.

Bradford said global steel consumption had declined 20 percent to 25 percent, but U.S. steel output was down 50 percent. "Something doesn’t equate; there has to be more to it, and I think it’s inventory," he remarked. "There has been excess inventory, not just of steel, but of things made of steel, like cars."

Bradford said he was encouraged by Ford Motor Co.’s announcement that it would produce 25 percent more cars in the second quarter of 2009 than it did in the first quarter. He noted that while automakers had cut production to an annual rate of 8 million to 9 million vehicles, if some 13 million vehicles were scrapped this year, this also would be a case of numbers that don’t equate.

Demand from China, India and Turkey has caused a thriving market for containerized ferrous scrap moving from the United States to those nations. "Who would have thought a few years ago that scrap recyclers would be shipping ferrous containers from scrap yards in Pennsylvania?" asked panelist Joseph Curtin of Tube City IMS, Glassport, Pa.

Panelist Randy Ehret of Timken, Canton, Ohio, noted that his company’s electric arc furnace (EAF) mills are fed largely with scrap, with 45 percent of the feedstock being shredded grades. He recalled the 2008 price spikes from the point of view of a mill buyer, saying, "We run with a fairly large inventory to prevent getting into a panic buying situation. But if you’re a buyer, there are times when you’re worried whether you can get enough iron units. And when that happens, I’ll pay whatever I need to get those units."

Ehret, Curtin and moderator John Harris, director of raw materials/tech applications for ArcelorMittal, said when melting schedules improved, there were likely to be similar scrambles for scrap metal. Curtin said lost U.S. manufacturing capacity would make prompt grades hard to come by.

Steel industry analyst Gavin Montgomery of CRU, London, may have been the most bearish. He said the steel industry’s capacity downturn was likely to continue and that the drop was so severe that a return to 2007 global steel production volumes may not occur until 2012.

Shifting to the nonferrous market, speakers at ISRI’s "Spotlight on Copper" were cautious in their short-term outlooks for the red metal. Price and demand for the metal had soared in the weeks leading up to the conference, but several of the speakers expressed apprehension about whether there truly was a full-blown recovery for the metal. Neil Buxton, managing director of GFMS Metals Consulting, London, noted minimal new capacity was coming online, which would result in demand dictating copper markets.

"We aren’t seeing any pick up in demand," he said. "We believe that China is supporting (higher) copper prices, but we believe that purchases are coming to an end."

Carlos Costamagna, ProMetal Management, Lacombe, Canada, said the alternative energy sector, notably the growth in the use of solar cells, would provide positive news for copper.

Daniel Edelstein, copper commodity specialist with the U.S. Geological Survey, forecasted a copper surplus of nearly 350,000 tons this year, climbing to nearly 400,000 tons by 2010.

John Gross, the publisher of The Copper Journal, Newport, R.I., said he saw a "complete disconnect between copper fundamentals and price."

He added, "Of the 10 largest consuming countries, only two will have positive GDP (gross domestic product)—China and India—this year.

"It is virtually unrealistic the price vs. demand. It doesn’t wash," he said.

Recognizing the growing importance of China in the recycling market, another session, hosted by the Recycling Metals Branch of the China Nonferrous Metals Industry Association (CMRA), focused on explaining the changing dynamic in the Chinese metals industry.

During the session, titled, "World Finance Affecting the Secondary Metals Industry," CMRA Vice Secretary General Ma Hongchang stated that the nonferrous metals industry in China remained robust, with some 10,000 companies involved in nonferrous scrap processing.

Although the second-half slowdown in 2008 caused China to import slightly less scrap compared to 2007, the nation still imported some 5.5 million tons of copper-bearing scrap and more than 2.1 million tons of aluminum scrap (an increase over 2007 for aluminum.)

When the financial crisis hit, it was severe, Ma stressed. Some 70 percent of China’s copper production capacity was halted in the fall of 2008, he said.

"This year the market is still in a weak state," Ma said; but, "China’s industry shows an emerging recovery picture."

CMRA Secretary General Wang Jiwei also said "China is appearing to bounce back with a fast recovery from the financial crisis."

Wang also commented on the importance of the CMRA communicating with ISRI and BIR (Bureau of International Recycling) as part of the global recycling community.

While the action China was taking in regard to metals was of great interest, a session on paper also covered the growing dominance of the Chinese market.

Bill Moore, a paper industry consultant from Moore & Associates, Atlanta, noted that China’s consumption of recovered paper had zoomed from about 4 million tons in 1990 to nearly 50 million tons in 2008. "China buys wherever there is recovered paper in the world," he said.

North American shippers of recovered fiber suffered from a sudden drop in demand from Chinese mills in the second half of 2008. Moore said he saw signs that demand was returning.

When reviewing paper mill capacity in different parts of the world, China was again the shining star, with 16 million new tons of capacity put in place from 2005 to 2009. Europe has added 3 million tons of capacity as well, but Moore said he was skeptical as to whether it was needed. "Europe is overbuilding," he said. "They’re heading for trouble because they’re still building mills when they don’t need capacity."

As for the North American paper industry, Moore noted that little new capacity had been added this decade, and he projected these mills would consume less recovered fiber in 2012 than they did in 2004.