A Rebuilding Project

After the boom years that ran from approximately 2005 to mid-2008, recyclers faced an abrupt end to the good times in the fall of 2008. The year 2010, much like 2009, offered a chance for scrap recyclers to recover and rebuild.

On the demand side, domestic markets for most materials varied from month to month but added up to sufficient demand overall, as buyers backed away from the market at times and then came back in 30 days later. Export markets, meanwhile, often provided an attractive option, although overseas buyers displayed a similar in-and-out-of-the-market pattern.

To some extent, lingering effects of the credit squeeze and reduced manufacturing output that characterized late 2008 and early 2009 are still being worked through. In particular, manufacturing output and construction activity remain closer to trough rather than peak levels, curtailing scrap generation.

The range of circumstances has meant that in 2010, most processors and traders of secondary commodities have continued to rebuild their businesses post-2008—though in many cases not to the peak volumes common before that painful economic era.

A NEW NORMAL

Economists and pundits have exchanged views in 2010 on whether there is now a “new normal” for economic figures such as unemployment rates and new housing starts.

For recyclers, figuring “new normal” calculations includes wider economic data such as housing starts and automotive vehicle production as well as industry-specific data such as steel mill capacity utilization, the generation of auto hulks and demand from export brokers for secondary commodities.

On the scrap generation side, construction activity in North America had begun to taper down after a peak reached in 2007, even before the Lehman Brothers collapse of September 2008.

Since then, however, construction activity has dropped severely. Figures for the first three-quarters of 2007 through 2010 reveal an industry that has contracted by 38 percent, as measured by new construction contract values:

• 2007 (Jan.-Sept.), $506.9 billion
• 2008 (Jan.-Sept.), $433.8 billion
• 2009 (Jan.-Sept.), $324.1 billion
• 2010 (Jan.-Sept.), $314.6 billion

The contract value figures, assembled by McGraw-Hill Construction, Bedford, Mass., portray 2010 as a year in which the construction activity drop was not as great as in the previous two years—but it has been a drop nonetheless.

Forecasters or business owners who hoped for a rebound in this segment in 2010 have been disappointed by a level of activity that has not returned. This disappointment has played out for scrap recyclers in the form of less demolition scrap and less scrap from new construction or renovation projects.

“There is very little flow,” a scrap recycler based in Texas told Recycling Today in the second quarter of 2010. “I hear from colleagues in other cities that flow is getting better, but around here there is nothing coming in.”

The automotive sector likewise was a victim of the credit crunch and increased unemployment, particularly in 2008 and 2009. In 2010, vehicle sales have risen by 10 percent, although the current sales figure may represent a “new normal” vs. the sales figures before the credit crunch.

According to MotorIntelligence.com, Woodcliff Lake, N.J., in the first 10 months of 2010 some 9.57 million passenger vehicles and light trucks had been sold. This figures comes in 10 percent above the 8.65 million units sold in the first 10 months of 2009.

The auto industry is on track to sell some 12 million units in 2010, compared with just 10.4 million in unit sales in 2009. The bounce back to 12 million units has helped generate somewhat more scrap (and demand for it at mills and foundries), but the sales level is still well below the 16 million vehicles sales rate that was in place from 2000 to 2007.

The situation also means fewer auto hulks on the supply side. “There are [shredder] operators really bidding up the prices they’re paying for auto bodies, but that’s never the path you want to travel,” one recycler commented in October. “You won’t have any black ink to show for it.”

DEMAND, HERE AND THERE

The difficulty for scrap recyclers and brokers to gather sufficient material with these two industries limping along has created a competitive landscape for recyclers ranging from shredder operators to recyclers of old corrugated containers (OCC) who collect material at industrial sites.

The vast majority of these same recyclers have had less difficulty on the sell side, whether they serve domestic consumers, predominantly export material to Asia or engage with both markets.

In the United States steelmaking sector, production has been up markedly in 2010 after a dismal 2009. Through mid-November, year-to-date domestic steel production stood at 77 million tons with a capability utilization rate of 70.3 percent. That is a 42.2 percent increase from the 54.1 million tons produced during the same time in 2009, when the capability utilization rate was 50.5 percent.

On the domestic nonferrous side, the recession’s impact on aluminum production can be seen in the drop from 2.66 million tons of aluminum produced in 2008 vs. the 1.70 million tons of output in 2009—a 36 percent drop in one year.

Primary production in the first nine months of 2010 has averaged 142,500 tons per month, putting the industry on course for production of even less output in 2010 (about 1.54 million tons), according to the U.S. Geological Survey.

Secondary aluminum producers in the United States seem stuck in the same rut, as they have consumed just 2.49 million tons of scrap in the first nine months of 2010 vs. 2.78 million tons in 2009. Each of those figures is below the 2.97 million tons of aluminum scrap consumed in the first nine months of 2008.

The financial industry turbulence of late 2008 was felt in most Asian nations, and China’s government in particular responded with a sizable stimulus package that was heavy on infrastructure spending—good news for metal producers.

The quick recovery of China, coupled with the comparative lack of financial industry exposure in India, helped East Asia and South Asia stay on target with significant GDP growth and basic materials production and consumption.

Several speakers at two November 2010 events in China—the China Nonferrous Metals Industry Association Recycling Branch (CMRA) forum in Ningbo, China, and the World Scrap Congress in Shanghai—provided statistics adding metals industry context to the economic growth in China, India and other Asian countries.

“In the first three quarters of 2010, China has imported 5.37 million tons of [nonferrous] scrap metals, an increase of 11.6 percent year-on-year,” said Wang Gongmin, president of the CMRA at that organization’s Ningbo event.

Of that total, “copper-containing scrap is 3.22 million tons [and] aluminum-containing scrap is 2.15 million tons, up 7.7 percent and 18.0 percent respectively,” Wang added.

The output of secondary metals has increased by similar amounts, Wang reported. “From January to September 2010, gross output of secondary nonferrous metals in China [was] about 5.5 million tons, an increase of 17 percent over the same period last year,” said Wang. “The average annual growth rate of secondary nonferrous metals shall be about 12.6 percent during the Eleventh Five-Year Plan,” he added.

The 11th Five-Year Plan in China concludes with 2011, which means aspects of the 12th Five-Year Plan were discussed in several presentations, including Wang’s. In that plan, said Wang, China’s Ministry of Industry and Information Technology was setting as its goal that “by 2015, nonferrous metals production shall reach 11.1 million tons, of which secondary copper is 3.8 million tons, secondary aluminum 5.8 million tons and secondary lead 1.5 million tons.”

Steel production in China is currently using far more iron ore and virgin materials than scrap compared with the virgin vs. scrap percentages of the copper or aluminum industries there.

At the World Scrap Congress, presenter Ozan Bekci of Turkish steelmaker Erdemir said that while 83 percent of Turkey’s steel production used electric arc furnace (EAF) technology, China’s EAF market share was just 10 percent.

The sheer size of China’s steel industry, however, still makes it a significant importer of ferrous scrap. Statistics presented by Bekci indicate that China imported some 13.7 million tons of “seaborne” ferrous scrap in 2009, nearly as much as Turkey’s 15.6 million tons.

However, with scrap demand and pricing rising in 2010, China has backed away to some extent, and the nation may end 2010 having imported only 7 million tons of ferrous scrap. “Chinese mills stepped up to the plate and increased purchases [in 2009],” said Bekci. “This was the saving grace, stabilizing the market.”

INDIA’S STEADY MARCH

 Another destination that has provided stability to scrap markets is India. In the ferrous scrap sector, India is developing as an export destination.

In a presentation at the World Scrap Congress, Arti Lunaya of Steel Authority of India Ltd. (SAIL), New Delhi, noted that “India is the fourth largest scrap importer after Turkey, China and South Korea.”

The nation may be poised to move farther up that list. “Indian consumption of ferrous scrap is set to increase from its current level of 15 million tons to 22 million tons in 2015,” said Lunaya.

India has reached its current level of more than 15 million tons consumed through steady annual growth. The nation consumed 11.8 million tons in 2007, 12.9 million tons in 2008 and 13.9 million tons in 2009 before reaching the 15.5 million mark. Lunaya estimated that in India, EAF steelmaking has a 24 percent market share. The nation’s scrap consumption could be even greater except that it also has access to affordable pig iron and direct-reduced iron (DRI).

For steelmaking overall, Lunaya and SAIL see Indian production growing from its present 53 million tons per year to more than 90 million tons by 2015. “India’s intensity of steel production growth will surpass China’s in 2010 and 2011,” said Lunaya, referring to 8 percent steelmaking growth in 2010 and 13.6 percent in 2011.

She also noted that since “domestic scrap generation [meets] only 50 percent of demand, the import of scrap is a crucial source.”

The author is editor-in-chief of Recycling Today and can be contacted at btaylor@gie.net.