ISRI: Hanging Strong

With firm markets for most commodities, the tone of ISRI's convention was upbeat.

In the constant cycle of the scrap recycling markets, members of the Institute of Scrap Recycling Industries were glad to meet on a peak at the association’s 1995 convention. The price of primary aluminum more than doubled between November of 1993 and last January, according to Robin Adams, president of Resource Strategies Inc.

"Since then it has declined by more than 25 percent," said Adams. "We are seeing movements of as much as $50 in a single day, often coming in less than an hour of trading."

According to Adams, the Memorandum of Understanding negotiated in early 1994 had little impact on the physical markets.

"The big picture is that the CIS net exports rose from less than 500,000 in the late 1980s to about 2 million tons at present and, broadly speaking, they are going to stay that way for several more years," Adams predicted.

Aluminum consumption in 1994 was particularly significant, Adams added, mainly due to a strong world economy.

"We estimate that the growth (in aluminum consumption) was more than 10 percent in 1994, or about 1.7 million tons. This figure plus 400,000 tons cut from Western production, less 100,000 tons of increased exports from CIS and China, equates to a net turnaround of 2 million tons. Thus, a surplus of 1.2 million tons in 1993 has been converted into a deficit of 800,000 tons for 1994 triggering a significant downtrend in inventories."

The aluminum market in 1995 is not expected to show as much growth as it did in 1994, said Adams, but increased industrial capital spending is expected at some point.

"Our forecast is that it will emerge again sometime in 1995 but if not then certainly in 1996," Adams explained. "In addition, there is a good chance that some time in the next year to 18 months the rate of decline in inventories will level off for a while. Once the market sees this happening, there is likely to be a significant change in psychology and many of these automatic trading systems could go into reverse."

As in many metal markets, China will play a role in the aluminum market, near-term.

"We look to this area to become a significantly larger net importer over the three to five year time frame," said Adams. "Thus, there remains a very strong chance of genuinely high aluminum prices, not as a result of speculation like over the last year or so, but as the result of a real physical tightness. "

On the steel side, scrap is in short supply and prices remain high, but they will go down again, according to Philip Tomlinson, Director of the Steel Business Unit, CRU International Ltd., London.

"There has been a definite easing of the U.S. market for hot rolled and cold-rolled sheet in recent months, although coated sheet and plate markets remain good," said Tomlinson. "This is partly because of the inventory reduction at consumers and service centers, and high imports from Russia, but real consumption is also wobbling: automobile production fell in the past two months...We expect U.S. consumption of sheet products to stagnate this year, in contrast to the last two years’ dramatic rises. Nevertheless, prospects for U.S. mills should remain good in volume terms, including those for scrap based minimills."

Scrap prices are expected to strengthen further over the next few months, followed by a slight easing later in the year, he predicted.

Electric arc furnaces, which accounted for 31 percent of world steel production in 1993, will likely continue to increase their share of world crude steel production.

"We expect the world share to rise to 39 percent by 2005, and 44 percent for the Western world," said Tomlinson. This is due to increased Asian steel production capacity, much of which is expected to be electric furnace based.

"A lesser factor, in our opinion, is the penetration of the minimill into new product areas, especially sheet," he added. "Flat product minimills simply do not seems as attractive under European or Japanese conditions as in North America. Scrap prices and power costs are higher, and integrated plants have the dual advantage of greater political influence and less problem with legacy costs."

In North America, minimills will likely produce about 18 percent of the total production by 2005 and some 12 million tons per year of capacity is currently planned in the U.S.

"Penetration in Western Europe and Japan is expected to be much lower, at only 4 percent in Europe and 11 percent in Japan by 2005," said Tomlinson. "In the western world as a whole, we expect some market penetration of EAF-based hot-rolled coil producers to rise from 4 percent of total production in 1992 to 11 percent in 1997 and 16 percent in 2005."

Prompt scrap is on a slowly declining trend, said Tomlinson, and the possibility does exist for a future scrap shortage.

"Theoretically, the former USSR has the potential to export sufficient quantities of scrap to meet any conceivable scrap shortage," he said. But the lack of infrastructure and the high cost of transportation will limit the country’s ability to transport large amounts of scrap.

"To balance supply and demand for scrap in the long term, we believe that scrap prices will need to be above past trend levels," said Tomlinson. "If we are right, the next downturn — in 1996 or 1997 — should be interesting for both scrap producers and consumers in the USA. We could see scrap prices falling by much less than those for products. This is rewarding if you are a scrap exporter, but decidedly uncomfortable if you are a U.S. minimill without a DRI or iron carbide plant."

The U.S. Environmental Protection Agency has proposed a new rule dealing with polychlorinated biphenyls that would affect the way recyclers handle wet shredder fluff, said Robin Weiner, ISRI’s director of environmental compliance.

"The rule is called the PCB Mega-amendments," said Weiner. "The reason why it’s called that is that there are actually more than 50 different issues addressed in the rule. It’s a total revamping of EPA’s PCB rule."

The proposed rule could have some positive effects on the recycling industry, she added, providing another disposal option for less toxic fluff, authorizing PCB-containing cable insulation chopping and adding a household waste exemption.

The authors are former editor and managing editor of Recycling Today.