Staying tight

DeAnne Toto

Scrap processors have been singing the same refrain as we head into 2014, and it goes something like this: “Generation is down and competition for available material is eroding profit margins.” (While it’s not the best example of songwriting, it still is a very catchy tune, apparently.)

Of course, this is not a new phenomenon. Recyclers have been complaining about this tightness in the market for the last year at least. And in commodity businesses like metals recycling, margins are always a concern as some buyers make price the primary factor in their purchasing decisions if the material is of an acceptable quality.

Recycling Today’s editors regularly talk with scrap dealers to prepare the commodity departments that are featured in each issue of the magazine. In December 2013, a scrap metal dealer who specializes in aluminum scrap told our editors that he felt 2014 would be a carbon copy of the last two years, with decent demand but with very tight margins and minimal generation.

Healthy demand for aluminum scrap may seem somewhat surprising given the overcapacity that appears to exist among aluminum producers. However, many aluminum producers have been vocal about their efforts to increase their use of recycled material. (See “Imports impact” beginning on page S26, in which Novelis and Alcoa talk about their consumption of scrap in the production of aluminum cans.)

For the first six months of 2013, the volume of red metal scrap moving from the U.S. to China slowed by 9 percent compared with 2012 based on figures collected by U.S. government agencies. However, according to statistics reported by the Chinese government and comments from scrap recyclers and consumers, even if metals production is nearing a plateau in that country, China’s copper, brass and aluminum producers will continue to import container loads of scrap as feedstock.

In fact, as of early December, copper scrap was enjoying healthy demand. One U.S. scrap dealer said his company was getting calls from consumers who were looking to shore up scrap supplies for 2014, many of whom were having a difficult time getting enough material to fill their orders.

Brussels-based World Steel Association (WorldSteel) is forecasting a 3.1 percent increase in global steel use for 2013, which means steel production will reach 1.475 billion metric tons in 2013. In 2014, WorldSteel forecasts that world steel demand will grow by an additional 3.3 percent, reaching 1.523 billion metric tons. This growth in production likely will result in more demand for ferrous scrap.

While healthy demand cannot be characterized as a bad thing for scrap processors, it can have negative effects on operations. And, if the recent past is any indication, scrap processors will continue to find competition for material fierce and profit margins slimmer in the year ahead.