Winners & Losers

The scrap industry’s New Year present might just come in the form of a long-awaited upturn in the titanium scrap market. Several factors bode well for titanium.

The aerospace industry is picking up. Boeing announced record-setting orders for its new 777 aircraft. Other market segments show promise. The overall result should be a real pick-me-up in the titanium market as more scrap becomes available.

Be prepared for, but don’t be deceived by, an initial shortage of scrap as the market ramps up. Early on, there is likely to be strong demand as the market begins to accelerate. It may take a while for materials to get into the pipeline and that should be reflected in strong prices. Whether or not those prices will hold is the big question.

“It’s not the same market as it has been,” warns Stuart Freilich, owner of Universal Metals, Worcester, Mass., noting that it does not take much these days to get the titanium market into a tizzy. “The Russians are in, the Russians are out; the market is producing junk, the market is producing good stuff. It’s a new market we’re in these days.”

Stainless Shortcomings

People in the nickel/stainless steel market might wish it were a new market. Folks there are not so happy, as the stainless industry had a Y2K crisis of its own.

Any time a market is in its trough there is apt to be consolidation of producers. Such was the case in the stainless area between 1998 and 2000, with numerous stainless scrap metal recyclers merging or buying out firms that could not survive the hard times. Pennsylvania remains the heart of the stainless industry and there has been significant consolidation of the scrap business in the Pittsburgh area as we moved into the new century. Similar consolidation trends were noted in other major centers, including Chicago, Houston and Los Angeles.

Fred Knox, chief operating officer at The Mercer Company, Mercer, Pa., says the actual mergers and consolidations are not as bothersome as the potential for credit problems. Low prices often result in slow payment or non-payment situations that can have an impact beyond the principals involved.

Given the depressed nickel prices in the second half of 2000, some buyers like Joe Zoldan, Philip Metals, Inc., Canton, Ohio, only see things getting worse.

“Six or eight months ago, who predicted this big fall-off in stainless steel?” asks the vice president of sales at another large East Coast operation. He is slightly more optimistic than Zoldan, but the key word is “slightly.”

A Nickel's Worth

The nickel market, true to its name, has had a devil of a time of it. We get the word from the German “kupfernickel,” literally “copper devil.” It was called that because the ore resembles copper yet contains none. Recently, scrap dealers have had a tough time making even a few coppers in the market.

Nickel is coming off some of its worst times ever. The market began a slow come-back in late 1999. While it is accurate to say that nickel prices roughly doubled in 1999, that was off a base so low as to be sickening. The late November 1998 price of nickel was around $4,160 a ton. By November 1999, that price had gone up to nearly $7,900 a ton. Recently, it has been hovering around the $6,500 area.

Al Demarest, buyer for Joseph Simon & Sons, Tacoma, Wash., sees no reason to complain with nickel trading in the $3 to $3.25 range.

“Lately, sales have been a bit better,” “On the West coast sabot is selling for 30 cents and we have no problem selling sabot,” he says. “If you want 40 cents, then yes, the market is bad. But I remember 18 cent markets and that is really bad. So 30 cents isn’t too bad to me.”

Although he says we may see improved demand for nickel scrap in the second quarter of 2001, Zoldan is not as optimistic about the market’s prospects. “Nickel prices will be down by 20 to 25% in the second quarter,” Zoldan says comparing them to fourth quarter 2000.

More worrisome to him than market fundamentals for nickel itself is the questionable picture for the overall economy. While he allows that there might be some increase in nickel demand, he calls the outlook “shady,” adding, “The whole economy might fall off. There are too many false economic barometers,” Zoldan adds. He notes that, while unemployment figures look good, they are based heavily on people taking jobs in fast food and other low-paying areas. “They’re not buying new cars on that kind of income,” he says. Entry-level incomes will not support a boom in major appliances and other consumer goods.

Others share his concern about the general economy. Even if there is an uptick in the first quarter, there are questions as to whether the upturn will be as large as everyone wants. Most observers are not at all optimistic that it will be large or enduring. But some people are able to discern a blessing in the general gloom.

Market Hope

“When everyone agrees that the market is bottoming, they are all wrong,” maintains Jerry Turchin, president of California Metals and Electronics, El Cajon, Calif. “It becomes a bandwagon. They no longer can see clearly. It is hard to remember when things were good and everyone says ‘woe is me,” he continues. “When everyone agrees things are bad it means we’ve hit bottom.”

Turchin admits the local markets “are certainly not firm. Things have been more horizontal,” he says. But he is turning material around and that means things still are far from desperate.

Knox likewise has hope. “Stainless steel is going to [have] a slow recovery because there is a lot of stainless coming back into the country as finished goods,” Knox says.

He sees lots of liquidation at all levels. “Everyone wants to keep inventories tighter. Material is available quicker so there is no lead time to be concerned about,” Knox continues. Like Turchin, he finds the business is there, if not booming. “It is livable. I have faith that things will turn around. I think it will [turn around] shorter rather than longer,” he adds.

Still, there are additional concerns about world markets. Even Cuba is getting a steel mill, built by the Germans. The steel from that rolling mill will go to Mexico and Canada, drawing raw material from Germany, but will still be another competitor in the Western Hemisphere.

Nickel scrap is usually sold in bundles, solids or clippings. Typically the scrap contains about 18% chromium and 8% nickel, according to the United States Geological Survey (USGS), Reston, Va. Turnings of this “18-8” alloy are more difficult to handle than bundles and usually bring about 85% of the bundle price. Taking a long-term look, demand for nickel has been fairly steady, thanks to demand for stainless steel. The stainless market has grown at an average rate of 4.5% per year since 1975, according to USGS figures. It’s the intermediate ups and downs that create tough sledding.

Stainless steel scrap accounts for about 85% of the reclaimed nickel – including scrap consumed in foundries in addition to that used in raw steelmaking. And, stainless in turn accounts for two-thirds of the primary nickel consumed worldwide. Numbers indicate there may be long-term room for growth in this market, especially in the domestic markets. USGS figures show that scrap accounts for as much as 80% of total feed materials in some European stainless steel production facilities, but typically only 60% to 70% in the U.S.

A few foreign mills have recently dropped their scrap ratio down to 30% to 40% because of problems in purchasing quality scrap at a reasonable price, a USGS report notes.

“Stainless has gone to heck,” says another scrap operator, when asked in December. ‘We are hearing that come January we might see a bit of an uptick in demand. But pricing is iffy,” he says.

Not all aspects of the nickel markets are dead. The nickel alloy business for aerospace is doing well. The high exotic alloys for the land-based turbine industry are very active and continue in good demand.

However, stainless rules the overall market and stainless is in the doldrums.

A Steady Titanium Course

“At the first of the year (2000), I thought the titanium market would be a bit stronger than it was,” says Demarest. While the market disappointed early in the year, he adds, “Lately sales have been a bit better.”

Indeed, figures confirm that demand for titanium in 2000 was steady, albeit lower. According to the USGS, receipts of titanium scrap totaled 5,760 tons with 1,560 tons of home scrap and 4,000 tons of purchased scrap in the second quarter. This was nearly unchanged from the first quarter of 2000, but somewhat below fourth quarter 1999 statistics that showed 6,120 tons total, with 3,270 tons of home scrap and 2,850 tons of purchased scrap. Scrap receipts in the fourth quarter of 1999 had decreased 4% compared with the previous quarter.

Freilich, whose company moves 2,000 to 2,500 tons of titanium to the export market, may be the nation’s largest single handler of material. “Looking at the first six months of 2001, I’d say the market will be more of the same,” he says. “My guess would be that ferro-titanium will trade in a narrow band.” However, he points out that, over an extended period of time – say a year – the numbers vary over a 40% to 50% range, with turnings trading as low as 50 to 60 cents and in excess of a dollar.

Demarest says it is his experience that the titanium market is either flat dead or red hot. “It isn’t like copper that stays in an 80-cent trading range,” he says. “Titanium rarely stays in a trading range like other commodities.”

Still, he was pleased to see turnings selling at better than $1.10. “I think the titanium market could hit $2 in a year,” Demarest says. While that may be very optimistic, even on reconsideration he still feels quite positive. “It’ll go 50 cents higher than it is now and then collapse 50%,” he guesses.

Titanium mill product shipments were off six percent compared with the previous quarter. USGS put the value of titanium concentrates consumed in the U.S. in 1999 at $522 million. Still, there are some positive signs that the titanium recycling industry is turning a corner.

Scrap demand from rotor grade and from forging people is up and should trend upwards for the next 12 months. The ferro-titanium market, however, is weakening, with the fall-off in the stainless market.

“Titanium is steady,” Turchin says. He was pleased to note that at least one major customer is becoming more aggressive in soliciting business. “He is putting out more bids and that will pay off,” Turchin says, noting the old saying that when one chops wood splinters will fall. He expects to do well gathering up the splinters.

“Tradition doesn’t exist any more. The market used to be easy to call. The players were easy to call,” Freilich says. “That’s changed. There is consolidation overseas.”

The Russian market remains particularly dicey. However, Freilich says he expects to see “reasonably ample” supplies through most of 2001.

Down the Road

For the nickel scrap market to show any life, Zoldan says there will have to be “increased demand for stainless and less dumping from overseas.”

The mills’ order books are looking rather poor at the close of the year and many mills feel those books are not in good shape. Things could turn around quickly when they do turn. however.

“The cycles seem to be quicker these days,” Knox notes. He buys from dealers and sells to the mills. He says he hopes for a turnaround in the second quarter.

There is almost unanimous agreement that the demand for high-quality titanium will continue.

“I think both titanium and nickel will get a little bit better and then take off,” Demarest says, repeating his observation that titanium rarely stays locked in a close range but is prone to wide swings.

“It rallies but never lasts more than 60 days and then it dies back again,” he says. In short, he expects an active market. “I really believe that when everyone bails, the market is ready to turn around.”

There could be one fly in the ointment for scrap titanium coming out of the aerospace market: fuel costs. Historically, large upturns in the cost of fuel have put a damper on the aerospace market as increased fuel prices push travel costs up. The domino effect of higher airline tickets forces a downturn in both personal and business travel, cutting into demand for aircraft.

Likewise, there is some concern about the general economy and a softening of home and car sales, which would indicate that personal spending is falling. That, too, would put a damper on the aerospace market.

Freilich predicts demand will perk up in the first quarter of 2001, some the result of panic buying. However, he notes that the steel mills and auto sales are slowing up. “The result will be a wash,” he expects.

The author is an environmental writer and Recycling Today contributing editor based in Strongsville, Ohio. He can be contacted via e-mail at curt@curtharler.com.