Better than expected

Nonferrous scrap processors and traders contacted by Recycling Today in mid-May say they were bracing for April to be much more painful than it was in light of lockdowns and reduced manufacturing activity related to the COVID-19 outbreak. However, that’s not to say it was painfree.

“Things didn’t drop as bad as we thought they might,” says a metals trader with a company that has operations in the Upper Midwest and Southeast.

When asked how his company has been fairing since the onset of the COVID-19 pandemic, a contact with a wire chopping operation based in the Midwest responds, “We’re doing. Is that a good enough answer?”

He adds that his company was fortunate to remain open as an essential business, though the social distancing requirement involved in doing so doesn’t equate to efficient operations. However, he says his company has not had to let any staff go since the pandemic began.

“We’re doing everything we can to be as safe as possible,” a scrap processor and trader based on the West Coast says of his company’s operations. “It takes time and effort,” he adds, referring to the housekeeping and sanitization required to ensure worker safety.

The West Coast source says his company has not had to furlough workers, though intake is down 30 to 40 percent. “We’re still managing to accept, receive and ship out metal.”

“Volume could be better,” the Midwest-based wire chopper says. “We’re getting material in, but the volume is not what it was compared to six months ago or a year ago.”

The trader whose company has operations in the Upper Midwest and Southeast says his company’s retail operations are reopening in May after having been shut down since mid to late March. In the Southeast, where the company’s operations were able to open in early May, he says retail traffic has bounced back to roughly the level it was out before the lockdowns. As a wholesaler and broker, where his company has felt the effects most acutely was in the shutdown of other scrap dealers’ retail operations, he adds. Volumes have been reduced by roughly 40 percent on the nonferrous side in the Upper Midwest, while ferrous has stayed relatively consistent.

“April was spent fulfilling March orders,” the trader says, adding that the company had few new sales. “We sold less in April than in any month in a long time.”

All three men mention the lack of activity in automotive manufacturing and the effect that is having on the aluminum scrap sector.

“Our business is hugely influenced by aerospace, automotive and construction,” the West Coast source says. Those three industries are suffering right now, none more so than auto and aerospace.”   

Automakers have pushed back their announced restarts repeatedly since the COVID-19 pandemic led them to temporarily shut down their operations in late March, though it appears most are poised to reopen by the middle or end of May.

Even though these manufacturers have announced plans to restart, the West Coast-based source says, “I don’t know what open up means anymore. Forward car sales sound less and less optimistic.”

The trader whose company has operations in the Upper Midwest and Southeast says secondary aluminum mills are “pushing off deliveries until they have more insight into when they can ship finished products. Most of the others are trying to balance deliveries with sales and shipments. They are trying not to get too far ahead of themselves.”

He mentions that aluminum scrap consumers are increasingly turning to just-in-time deliveries in an effort not to carry too much inventory. 

“Some of the larger aluminum billet manufacturers are really hurting, certainly out on the West Coast and in the Midwest,” the West Coast-based source says. 

Consumers are still taking contracted orders, the Midwest-based wire chopper says, though deliveries have been pushed back. “What happens in December and January of next year?”

The trader with operations in the Upper Midwest and Southeast also says that most mills are honoring their contracts, though May orders have been pushed out to June or July.

Many aluminum scrap contracts are negotiated at the Institute of Scrap Recycling Industries Commodity Roundtables Forum that takes place in Chicago in September. If this event is affected by COVID-19 containment measures, the Midwest source wonders what that could mean for the industry. He also questions whether the consuming mills will be less interested in establishing contracts for next year given the way aluminum pricing has declined so far this year. “I see a lot of people shying away from contract business,” he says.

Red metals scrap is faring better by comparison. “Copper demand is still relatively strong,” says the trader whose company has operations in the Upper Midwest and Southeast. “Supply is still relatively weak.”

“Red metals are trading, and the prices seems to be—I’m not sure I’d call it stable—holding at a certain level,” the West Coast-based source says. “The velocity of cash flow dictate that you may have to sell at a price you do not love.”

Overseas trading felt the effects of the COVID-19 outbreak earlier than we did in North America but are showing signs of coming back. “Overseas demand dropped in a really big way,” the trader in the Upper Midwest says. “It is slowly coming back.”

The West Coasts source says many overseas markets were shut down completely, including India and Pakistan. “We’re starting to see shades of hope on some of those countries. It’s extremely slow and spotty.”

He adds that his company’s overseas trading partners have honored their commitments, unlike what some scrap traders experienced in the financial crisis of late 2008.

“It’s a time to be thankful if you’re diversified a little bit in our industry” in terms of overseas destinations, the West Coast-based source says.

Sources were bracing for more challenges in transporting material as a result of the COVID-19 outbreak.

“I thought it would be impossible,” says the wire chopper in the Midwest of securing trucking. However, he says that has not been the case in his experience and that rates have even improved.

“There was a moment at the beginning where trucking went through the roof in terms of pricing and availability was gone,” says the trader for the company with operations in the Upper Midwest and Southeast. He adds that is no longer the case with reduced manufacturing and retail activity.

While ocean shipping presented some issues initially, he says his company can get bookings and containers “for the most part.” However, he adds that issues still exist in India at the ports and expects the backlog there to take four to six weeks to work through. “It seems like a tremendous amount of containers are waiting to get into India and Pakistan right now.”

The West Coast source says certain areas present more challenges than others in terms of getting bookings. “We are working through it,” he adds. “A few more phone calls and more stress is involved.”