ISRI 2016 Convention: Weathering tough times

Pictured above: Adam Schor of Janus Capital Group. 

 In the “Opening General Session” that kicked off general programming at the Institute of Scrap Recycling Industries (ISRI) 2016 Convention & Exhibition in Las Vegas, April 5, analysts from PIMCO and Janus Capital Group shared their views on when recyclers can expect the current market to improve.

Adam Schor, senior vice president and director of global equity strategies, Janus Capital Group, Denver, said China will have important implications in metals markets for the next several years. He said the commodity boom of the last decade was a “once in a lifetime” event and we are currently “living in the hangover of that.”

Schor said demand for metals shifted to China in the last decade, representing more than half of global demand. He said the country is now in destocking mode, removing excess capacity.

He said it likely will be two to three years before supply and demand regain balance. 

He predicted that the U.S. dollar will lose value, making scrap from the U.S. more attractive to overseas buyers, and that interest rates will stay low through the end of the decade. Crescenzi added that interest rates in the U.S. may reach 2 percent by 2020, while the European Central Bank (ECB) may get its interest rate to zero by then.

He said central banks are printing money to support prices, adding that every $1 the U.S. Federal Reserve Bank puts into the system has the potential to create $8. Crescenzi said this practice prevents banks from deleveraging faster. The U.S. Federal Reserve Bank and the ECB also are purchasing bonds to support prices.

The gradual improvement of the global economy will support an improvement in commodities markets, Schor and Crescenzi said, but the exceptional margins the industry saw as the result of the commodities super cycle fueled by China’s growth likely will not return.

Despite the difficulties recyclers have seen recently, the current market can offer opportunities for companies that are well-run.

Session moderator, Timothy Kneen, chief investment officer at IFAM Capital, Denver, pointed out some benefits for scrap recyclers associated with the current market. He said the present market creates an historic opportunity for recyclers to acquire assets at discounted value and to transfer assets to the next generation with less taxation. Companies are acquiring other firms at zero valuations, essentially, Kneen said, making purchases at little more than the cost of inventory.

The current market also gives family-owned companies the opportunity to train the next generation on clean management techniques, he added.

Before the analysts took the stage, ISRI outgoing Chairman Doug Kramer of Kramer Metals, Los Angeles, spoke. He said tough markets such as the one recyclers are experiencing currently require “decisions with purpose.”

Kramer urged recyclers to remain involved with ISRI despite the difficult market. “With ISRI the return on investment is clear,” he said.

“ISRI is an exceptional value every day,” Kramer said, adding that it has “more value the more you’re involved.”  

The ISRI 2016 Convention & Exposition was April 2-7 at the Mandalay Bay in Las Vegas.