Lower numbers

Graphs and charts tracking metals prices in 2015 depict the difficulty recyclers faced throughout the year as the prior commodities boom faded into history. Lower prices have yielded diminished revenue for scrap recyclers, often in tandem with volumes that also have dropped.

The steepest plunge has occurred in the ferrous scrap market, where prices started out in the $360 per ton range in January but by early November had fallen to $160. After years of rising steadily, China’s consumption of steel stagnated, while its mills continued to churn out steel that it sold onto the world market at increasingly lower prices.

Nonferrous metals prices also trended downward through most of 2015, as China’s less ravenous appetite for copper also affected the overall supply-demand balance of that metal.

Recyclers of nonmetallic materials experienced relative stability compared with the volatile metals sector, though reprocessors of plastic scrap were forced to compete against virgin plastic materials with prices that stayed low throughout the year.
 

The big drop

Very few business models of any kind can cope with a circumstance where the product one prepares and sells has only half the value at the end of the year as it possessed at the beginning of the year.

Unfortunately, the ferrous scrap recycling sector has found itself grappling with that very dilemma. From February through early November 2015 prices experienced few ups and many more downs—some of them drastic ones.

Price indices created by American Metal Market (AMM) for the first 11 months of 2015 show values that plunged drastically twice during the year: by more than $100 per ton in February and by $50 dollars in October (followed by another $20 drop in November).

During the other eight months, prices only rose appreciably once (in June 2015, by about $25), while in the remaining months per ton pricing rose or fell by just a few dollars.

The plummeting prices occurred while the economies of the developed world, particularly in the U.S., were undergoing modest growth as measured by gross domestic product (GDP).

Steelmakers and recyclers in the U.S. have pointed to China’s steel industry overcapacity as the source of disconnect between a reasonably healthy economy but a sour steel sector and ferrous scrap market.

For two decades China’s intense demand for steel caused by its rapid urbanization and infrastructure investing caused the global demand for iron ore and ferrous scrap to skyrocket. Between 1993 and 2013, China’s steel sector grew from being smaller than those of Europe, the United States or Japan to represent fully half of all global steel output. Any steel China could not produce itself was often made in electric arc furnace (EAF) mills in South Korea and Taiwan.

However, the rate and the nature of China’s economic growth has changed, whether because it is being managed that way (as the Chinese government states) or because the investment wherewithal to promote fast growth has subsided. In any event, China’s peak consumption of steel has likely occurred in 2013, and at least one central government official does not see it returning any time soon.

As reported in late October 2015 on the website of the Australia-based Financial Review, Li Xinchuang, president of the China Metallurgical Industry Planning Association, said China’s production and consumption of steel peaked in 2013 and will decline in the future.

Li told the financial newspaper that “China’s steel consumption will fall below 600 million metric tons by 2030, down from 738 million metric tons in 2014.”

Throughout 2015, China’s large steel producers (many of them state-owned enterprises) have maintained steady levels of output at their mills, churning out semifinished and finished steel. The mills have sold considerable volumes to the global market but also reportedly have large stockpiles on the ground.

An early October article on the Asian Nikkei Review website cites a UBS Securities report portraying the growing steel inventories in China. “UBS Securities expects China’s crude steel capacity to exceed consumption by 441 million tons in 2015,” says the article’s author, adding, “The steel supply-demand gap will grow to be nearly three times wider than it was five years ago.”

That has brought bad news to scrap recyclers in the U.S. on two fronts: 1) most of the steel in China is made in basic oxygen furnace (BOF) mills with only modest amounts of imported scrap used; and 2) that 441-million-ton figure is five times the annual steel production in all of the United States, thus it has the ability to displace large volumes of U.S.-made steel.

If Li is correct and consumption of steel in China is decreasing, steelmakers and scrap recyclers around the world will be keeping a sharp eye on whether genuine steel mill capacity cuts are underway in that nation.
 

More eastern echoes

As in the ferrous markets, the state of China’s economy has played a pivotal role in the pricing of and demand for several nonferrous metals in 2015.

The relatively healthy state of the U.S. automotive industry has helped keep domestic demand for aluminum scrap nearly stable, and a gradual rebound in the construction sector has kept red metal scrap demand from sliding in a way resembling ferrous scrap’s scenario.

Statistics gathered and published by the United States Geological Survey (USGS), Reston, Virginia, show secondary aluminum production in the first eight months of 2015 down by 0.4 percent compared with the same period in 2014. Output diminished from 2.41 million metric tons to 2.4 million tons.

The 2015 figure could have been higher, however, except American buyers had access to considerable amounts of imported aluminum alloys, sheets and bars. During the same eight-month period, aluminum import levels rose by 7.5 percent, growing from 2.92 million metric tons in 2014 to 3.14 million metric tons in the first two-thirds of 2015.

USGS statistics for copper show output at U.S. brass and wire-rod mills in the first seven months of 2015 declined slightly compared with the same period in 2014. Producers in those sectors created 336,000 metric tons of product in 2015, down 1.7 percent from the 342,000 metric tons of output in that stretch of 2014.

The value of both high-volume nonferrous metals has trended downward in 2015, with copper on the London Metal Exchange (LME) finishing January 2015 with a cash buyer average value of $5,814.33 per metric ton but concluding October 2015 at an average cash buyer value of $5,221. That represented a 10.2 percent drop in the red metal, and it fell further in the first half of November as markets expressed a lack of confidence in future Chinese and global metal demand.

As with steel, the gloomy global sentiment was tied to a perceived peak in the intensity of China’s consumption of copper. Its appetite for imported scrap likewise has affected options for North American nonferrous metal recyclers. (See the sidebar, “Trying Harder in Trying Times,” above.)

On the scrap supply side, the falling prices of ferrous scrap and copper in particular have hurt scale traffic and volumes at metals recycling facilities throughout North America in 2015.

Metal recyclers dealing with lower prices and lower volumes—even if they can maintain a margin—are unlikely to consider 2015 as a year to remember fondly.
 

Relative optimism

When considering the global economic implications of China shifting from a manufacturing-based economy to one more focused on internal goods and services consumption, metals recyclers may have more reason to be gloomy than paper recyclers.

As discussed by panelists at two Recycling Today Media Group events in October 2015, the global production of and demand for containerboard has better weathered China’s recent economic turbulence.

While there may indeed be overcapacity in the Chinese paper mill sector, it has not led to mass exporting of paper, and packaging grade mills in North America, Asia and Europe all remain hungry for recovered fiber.

At the 2015 Paper & Plastics Recycling Conference, hosted by the Recycling Today Media Group in mid-October in Chicago and presented in cooperation with the Paper Stock Industries (PSI) Chapter of the Institute of Scrap Recycling Industries Inc. (ISRI), one speaker predicted steady demand from China for old corrugated containers (OCC), though he added that making predictions about China is risky.

“All the way through, you have these issues with China,” said Steve Sutta, president of Sutta Co., Oakland, California. “China is opaque. An issue we’re facing in China comes from the fact that it’s a guided economy,” he added.

A forecaster at the 2015 Paper Recycling Conference Europe, hosted by the Recycling Today Media Group later in October in Madrid, also portrayed a bright near-term future for OCC.

Riku Kallio of Finland-based Pöyry Consulting told conference delegates that, when 2015 numbers are gathered, Chinese imports of recovered paper are likely to increase compared with 2014’s volume.

Pöyry Consulting forecasts show that China and India are likely to improve domestic recovered paper collection figures in the years ahead. “We are expecting that both countries will rely more heavily on domestic OCC [by percentage], but that doesn’t mean that [net] imports will decline,” Kallio said, “because the overall demand for recovered paper will increase more rapidly still.”

Pöyry’s forecast calls for China’s demand for imported OCC to increase by 8 percent by 2020 compared with the 2014 level, while India’s demand will increase by 22 percent from its smaller base.

By volume, plastics recyclers likewise have growth opportunities, but profit margins have proven hard to come by as virgin resin prices plunged down that at times they undercut secondary resin pricing.

At the Chicago conference, Robert Render, commercial manager of Ravago Recycling Group, a division of Belgium-based plastics distributor Ravago, commented on the effect of declining crude oil prices on recycled plastic markets. As an example, Render pointed to polypropylene (PP) pricing that declined 30 cents per pound from September 2014 to September 2015.

Render added that new prime PP and polyethylene (PE) resin capacity will be coming online in 2016 and 2017, keeping prices for those resins soft and further squeezing recycling operations. “Compounders have their choice of materials to purchase and are being selective,” he said.

The corporate sustainability movement has been a saving grace for plastics recyclers, according to Render, who said demand for recycled content is growing among brand owners. He said demand is increasing in the building products, automotive and appliance sectors as well as from consumer products companies.

Green-minded shoppers in the plastics sector and shoppers of all kinds in the paperboard packaging sector have helped nonmetallics recyclers make it through an at-times difficult 2015.

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