Strength Forecast in Gulf Region

Significant infrastructure in most commodities, especially steel, will assure a bright future for recycling in the Gulf Coast region.

Like the weather around the Gulf of Mexico, the outlook for the recycling markets in the Gulf Coast region is sunny and bright. There are some storm clouds floating around, but generally the hurricane warnings are out of sight.

Perhaps the brightest aspect of recycling in the region is ferrous metals. Alan Perlman, president of the newly organized PerlCo, L.L.C. in Memphis, says the scrap steel market in the South has been "firm and strong" and he sees it staying that way for at least a couple of years.

Prices for Number 1 steel, delivered to the mills, are hovering in the $145 to $150 a ton range and have been fairly steady within a range of a few dollars.

As President of the Gulf Coast Chapter of the Institute of Scrap Recycling Industries, Perlman has a sweeping view of the regional scrap markets. "Over the next few years, the market will stay that way due to the increasing steel capacity coming on line along the (Mississippi) River," he says.

Nucor has opened a mill and TriCo, the LTV joint venture, is planning another. Likely sites will be in Decatur or Northern Mississippi in the Greater Memphis region.

"There will be 15 million tons per year capacity coming on line within the next five years," Perlman says. That includes mills either just beginning production, under construction, or on the drawing boards today.

Almost all of the mills providing this strong demand are the more efficient mini-mill designs and will be heavily dependent on scrap or scrap substitute for input. "Those mini-mills are running flat-out," Perlman says.

Jack Goldin, chairman of the board of Goldin Industries, Gulfport, Miss., agrees. "Mills are running at 93 percent recently and prices are moving in a narrow range," he observes. "As long as demand from those mills stays healthy, I think things will remain strong."

Supplies of scrap in the Gulf region are adequate, but demand should continue to become greater, says Goldin. "I don’t think a lot of scrap will be imported," he says. "Those mills will get their scrap. They may have to pay more for it, but they will just paste it onto the price tag," he says, noting that mills may bring in some foreign pig iron or DRI if supplies do get tight.

With the labor cost to produce a ton of steel at a mini-mill under one man hour, the United States again finds itself offering a competitive product when compared to world markets. U.S. steel output is as cheap, if not cheaper, than foreign competitors, but can the mills meet demand?

"Demand is strong. The mills are at 90 percent of capacity," Perlman says. "But even if demand in the U. S. drops, our domestic production will be competitive with overseas markets."

PerlCo is working a joint venture with Cozzi Iron and Metal and Miller Compressing to process 220,000 tons of scrap steel per month. To start, all of the scrap is being handled internally, but Perlman says they expect to broker it eventually.

One of those new mills will be opening in Decatur, Ala., where Joel Denbo is vice president of Denbo Iron & Metal Co., Inc. "The outlook is good for consumption," he agrees. "Things look bright in the South. This is our day in the sun."

He sees supply of scrap as another story. "I believe we will be a scrap-short area," Denbo continues. Because of the good inland waterway system throughout the Gulf area and up into the Midwest, he sees a lot of imported scrap being delivered by ship and barge to the new mills. While the mills will buy locally first, a lot of the market share that could be distributed among U.S. firms will go offshore. Trucking simply makes it prohibitive to bring scrap in from the West.

One solution proposed by several in the industry would be revision of the Jones Act which regulates shipping between U.S. ports. "The Jones Act has done a lot to contribute to the demise of the American flag ships," Denbo says. While he says there is no reason to totally repeal the measure, he would like to see modifications that would make it both possible and profitable for scrap to be brought from the East or West Coasts to the Gulf region.

"If the boys on the Coast can’t get their product to market, they get hurt," he points out. "We’ll be a scrap-short area and could use their material. It only makes sense."

Given that mill rates remain in the 90 percent area and a strong export demand continues for finished product, Denbo says that the scrap market should continue to do well. However, if for some reason the mills drop back to 75 percent production, the scrap business will be hurt, too.

Although not as industrialized as the Midwest, the Gulf region does have its shipyards, barge operations and fabricating plants which produce scrap. "The flow of scrap is not bad," Goldin says. "Those new mini-mills won’t hurt the scrap market one bit."

NON-FERROUS ROLLER COASTER

Other metals have been shooting stars — streaking brightly across the market horizon one minute and flaming out the next.

Copper prices across the Gulf region, reflecting broader national and international trends, have weakened. Aluminum continues to weaken as the threat of large supplies from Russia overshadows the market. In neither case, however, is the blame to be laid on regional market difficulties or any weakness in the local markets.

Signing of the international Memorandum of Understanding early in 1994 was supposed to stabilize aluminum markets. The agreement was written to apply "for 21 months at the maximum." That puts the close of the agreement in November, 1995.

However, even a 21-month lifetime might be optimistic. The political situation in the former Soviet Union is fragmented and decentralized, and those new nations are each scrambling to survive economically. Many of them are working with antiquated facilities and with economies which are on the border of collapse. Aluminum is one vehicle for those emerging states to gain hard currency. They barter their aluminum for other commodities or cash.

Since nobody seems to have a firm grip on how much aluminum will come out of the former Soviet states, the international markets remain hesitant. However, preliminary estimates from the Aluminum Association for early 1995, released in mid-May, show industry shipments for the first two months of 1995 up five percent at 3,252 million pounds. The 3.3 million metric tons produced in March 1995 is 72,180 fewer than in March, 1994 and 1,274 fewer than in February.

The nickel market, perhaps, has had the most heart-thumping ride in recent months. The price of nickel went up to $10,000 per metric ton at the end of 1994. By early May, the price fell to $7,100 per metric ton.

Participants in the scrap market agree that the prices in all of these areas have nothing to do with the underlying value of the metals or with supply and demand. Uniformly, they point to speculators on the London Metals Exchange who they say cause the wild fluctuations in market prices.

GULF PAPER MARKETS

The market for recycled paper is shining like a new sun in the sky. It’s not so much that anyone is getting rich overnight. But, in an industry segment where there was so much darkness in the recent past, any encouraging signs can dazzle onlookers. The paper market is seeing better times -- no longer does it cost money to have recyclable newsprint processed.

"Demand is up and the infrastructure is being built to handle recycled paper properly," Perlman says. "The corrugated market is seeing high prices and they are paying for newsprint again.

"I don’t see when the paper market will drop down. Enough people are out there who know how to grade and process it, and the future looks good."

Stan Litman, president of Texas Recycling, Dallas, agrees that the demand for newsprint is high. "It’s worth good money," he says. In addition to running a major paper recycling operation, Litman is president of the Paper Stock Industry Chapter of ISRI.

"Corrugated, the high grades and de-inked papers are holding their own," he says.

As in the steel industry, there are a number of brand new mills coming on line which use fiber. While Texas has a number of board and linerboard mills working, the trend to new mills is one which is being noted throughout the Gulf Coast region and even nationwide.

"There is big demand in the Mexican market as well," Litman observes. "Everyone needs paper. I’ve been wrong before, but I’d say that the demand side of the market will be like this for another 18 months."

Many existing mills are converting from pulp to secondary fiber. "Where in the world will we get all the paper for these mills?" Litman asks.

In the face of strong demand, it is vital that the industry tap into every resource that is producing recyclable material. But the major sources of large quantities of paper for recycling have been tapped and are well spoken for.

The paper industry has been one of the beneficiaries of market development efforts by the Southern States Waste Management Coalition in Norcross, Ga. According to SSWMC’s Craig Seeley, OCC prices have reached $200 a ton this year in some areas. Contrast that with $10 a ton just three years ago. SSWMC is concentrating on developing markets in all areas of the South, Seeley says, with a view toward promoting a healthy recycling business.

Beyond the large mills and office centers, collection remains a concern. "How do we get the paper out of the little people — the offices that produce just a trunkload of paper a week? That is where the biggest amount of paper is today. I can’t afford to send a truck around to all the small offices to collect paper," Litman says. "They will have to bring the paper to a recycling center.

"The problem is, everyone is for recycling, as long as it doesn’t cost anything or inconvenience them," he observes.

Nevertheless, with demand continuing to outstrip supply, it is likely ways will be found to get the needed paper. With mills taking their traditional downtime again this year, look for demand to be backed up even more.

Despite the general view within the recycling industry that the Southeast is riding the crest of big business wave, some state planning and economic development directors don’t seem to have caught on yet.

POST-CONSUMER

The big weather change felt in the Gulf states in recent years was Florida’s passage of an Advance Disposal Fee measure. The concern throughout the industry was the possibility of ADF regulations spreading throughout the Southeast. North Carolina was cited as the likely follower in Florida’s ADF footsteps. But so far, it does not appear that North Carolina will follow suit.

Any packaging material which does not meet a state-set recycling goal is included under the ADF. Provisions of the Florida ADF went into effect October 1, 1993 at a one-cent rate. Two cents was to be collected at the wholesale level after January 1, 1995. The ADF, when first put forth, did not apply to aluminum and steel which already met their 50 percent goal. It was to include plastics, plastic-coated paper, and glass. However, glass got an exemption last October. The measure defines a container as any can, bottle, jar or beverage container made of steel, aluminum, glass, plastic or plastic-coated paper that is between five ounces and one gallon in size.

Originally, meeting a 50 percent goal was the way out of the ADF. Now, plastics with 25 percent post-consumer content or glass with 35 percent post-consumer content is exempt. Or, if a firm can prove it is causing the material to be recycled into other products — say, plastic into carpet fiber — it can meet the exemption.

The ADF bill did have an impact on materials, glass especially. Glass volume in Florida increased 300 percent over the previous four years.

GLASS GROWTH DROP

"When the ADF was implemented, consumers got mad and growth came to a standstill," says David Baker, regional director for the Glass Packaging Institute’s Southeast Office. "The drop in growth was not all due to the ADF," he concedes, "but the ADF surely was a factor."

The volume of glass coming from municipal and curbside programs in Florida dove. However, as the market has had the chance to sort things out over the past 12 to 15 months, recycled glass volume has gotten back on track.

Dan Burns, southern regional manager for All Waste in Sarasota, Fla., says he feels the markets are "as strong as ever," and there was no real impact on either volume or quality of recycled glass due to the ADF.

Beyond Florida and throughout the rest of the Gulf states, there has been above-average growth in the recycled glass market. In Georgia and Alabama, the growth numbers have been excellent, exceeding national averages, and new curbside programs there are doing well.

The Southeast has 10 glass plants across eight states. All Waste has two processing plants in Florida and another coming on-line in Jackson, Miss. GDS has an operation in Georgia. So markets, while not abundant, are present. Tipping fees, however, are generally lower in the Gulf Region than in other areas of the country. If a community is not in the right location, hauling glass from recycling centers to users becomes an expensive proposition. However, Baker notes, it usually is possible to find a backhaul for runs in the Gulf region, and that often is the difference between turning a profit or experiencing a loss.

REGIONAL ECONOMICS