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Liking The Upside

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Scrap metals retained lofty pricing in 2011, although the second half of the year had its ups and downs.

Brian Taylor January 26, 2012

For much of 2011, demolition contractors and C&D recyclers received prices for their scrap metal that were not only near historic highs, but also relatively stable. In the final four months of the year, however, price volatility first affected the copper market and then it affected the market for ferrous scrap.

As 2011 turned to 2012, prices for scrap iron, copper and aluminum could all be considered healthy, and demand for scrap was steady in the U.S. and vigorous in many other parts of the world.

Ferrous scrap shippers in the U.S. had received steady prices for their products from March through October of 2011, whether export demand fluctuated or not. After November, when buyers came in with offers about $40 per ton lower for many grades of ferrous scrap, these same buyers came back into the market in December in the previous price range.

Red metals (copper and brass scrap) traders began to experience volatility in the third quarter of 2011. In September, prices for copper on international exchanges fell sharply, meaning scrap processors in the U.S. dropped their scale prices for demo contractors and other customers.

In the nonferrous metals markets, where prices change minute-by-minute on international exchanges, throughout 2011 conditions in the world’s economy provided a sub-text of anxiety. While traders kept one eye on Internet news sites at all times to make sure world events did not catch them off guard, demolition contractors asking for copper and brass scrap price quotes often heard very different numbers from one day to the next.
 

Paper and Plastic

As with copper scrap, old corrugated container (OCC) prices experienced price volatility in 2011, with the second half of the year offering generally lower prices.

At the 2011 Paper Recycling Conference (www.Paper
RecyclingConference.com
), held in Chicago in late October, panelists were nonetheless optimistic that Asian markets would continue to work in tandem with domestic mill demand to keep OCC healthy. “I think there is still growth to come in places like India in the next five to 10 years,” said Rice.

“China has only 4 percent of the world’s forestation but about 20 percent of its population,” said DeRueda, who added that OCC shipments from the United States to China will likely rise again in 2011 when final statistics are tabulated.

The global significance of Chinese recovered fiber imports was highlighted in a BIR (Bureau of International Recycling) Autumn Round-Table presentation given by Nobutaka Okubo, the vice president of the Japan Recovered Paper Association. He indicated that China accounted for 79.8 percent of all Japanese recovered paper exports in 2010 (slightly less than 3.5 million metric tons). Of the 4.4 million metric tons exported by Japan to all destinations, OCC made up 50.6 percent and news/OMG a further 34.3 percent by grade, said Okubo.

American paper recyclers contacted in December described the OCC market as “sluggish,” though, as Chinese mills continued to postpone making significant purchases. Several paper stock dealers also say Chinese New Year, which takes place in late January, is likely to further suppress pricing for OCC.

At that same BIR event (held in Munich in October), BIR Plastics Committee Chairman Surendra Borad of Gemini Corp. NV, Belgium, used the phrase, “under pressure” to describe plastic scrap prices in the United States. The export market to India was “absolutely dormant,” said Borad, as many company licenses to import plastic scrap into India had not been renewed. India’s domestic recycling industry, on the other hand, “is doing extremely well” and claims to have achieved a recycling rate of 47 percent, Borad said.

An American plastics recycler contacted by Recycling Today in mid-December said that several grades of plastic scrap were oversupplied at that time, causing prices to decline. He said, though, that he expects demand to recover in late winter as the supply starts to slow.

In his presentation, Borad predicted “a golden future” for the rapidly-expanding recycling industry. After examining data, he has arrived at the conclusion that the global recycling industry is worth upwards of $500 billion annually and employs as many as 20 million people around the world. The industry “is growing at a tremendous rate that is faster than (world) GDP growth,” Borad stated.

Iron Resolve
With turmoil as a backdrop throughout the year and the red metals markets beginning to fade in mid-August, ferrous scrap processors may well have anticipated their market segment would be the next to suffer. And a price drop that occured in November seemed to point in that direction.

But if demolition contractors and scrap recyclers were concerned about price declines in November, they merely needed to wait for the December buying period, when prices rebounded by nearly the same amounts that they had fallen 30 days earlier.

Spot market figures collected through the Raw Material Data Aggregation Service (RMDAS) of Management Science Associates (MSA), Pittsburgh, showed domestic steel mills paying from $10 to $40 more per ton for their scrap in the first 20 days of December.

The $400 to $495-per-ton prices paid by mills puts the market back into the range where it sat from May to October of 2011.

Two different recyclers in the South reported that across-the-scale scrap flows were strong in December. A peddler yard operator in Arkansas said that in mid-December, despite the harsh weather moving through his state at that time, traffic was brisk. In some cases, peddlers, farmers and other property owners were selling obsolete items to earn some last-minute holiday spending money.

Another recycler who works for a larger processing and wholesaling firm, said that as of mid- and late December many smaller dealers were holding onto their scrap. “Our secondary suppliers feel bullish about January and are holding back,” says the scrap processor. “A lot of smaller dealers are seeing what they think will be a bigger market in January and holding onto material. Plus, a lot of them want to minimize their 2011 tax liability, so they are not selling any more in 2011.”

On the demand side, North American mills in early December produced at 74 percent of capacity, according to the American Iron and Steel Institute (AISI, www.steel.org). That level is above the 2010 same-week rate of 68 percent but down slightly from the previous week of this year.

With 2011 nearly complete, steelmakers in the U.S. had produced nearly 90 million tons of steel, showing a 7.5 percent increase from the 83.6 million tons that had been produced in the first 11-and-a-half months of 2010, according to AISI.

Globally, figures from the World Steel Association (www.worldsteel.org) demonstrated a significant decline in steel production in November 2011 compared with the month before. While the world’s steel producers pumped out nearly 124 million metric tons of steel in October, in November that figure fell to just 115.5 million metric tons.

The biggest decline was in the biggest market, as Chinese production slipped by 4.7 million metric tons, accounting for about half of the global decrease. European steelmakers also produced about 1 million metric tons less, while steel output in the U.S. was down by less than 120,000 metric tons.

“The world crude steel capacity utilization rate of the 64 countries in November 2011 declined to 73.4 percent,” according the World Steel Association. “This is its lowest point for two years.”

Despite the slow November, with 11 months of figures compiled, steel production in China in 2011 has totaled 631 million metric tons, a nearly 10 percent increase over production in 2010.

In major scrap export destination Turkey, steel production in the first 11 months of 2011 was an impressive 17.6 percent higher year-to-date compared with 2010. Some 3.6 million metric tons more steel was produced in 2011 compared with the year before.
 

Rapid Pulse
Buyers and sellers of nonferrous metals, and copper in particular, operated in an environment of historically high prices in 2011, with volatility added to the mix in the second half of the year.

While copper’s autumn volatility grabbed the spotlight, the world’s aluminum market functioned on a more stable plateau. Measured by London Metal Exchange (LME) aluminum alloy cash buying monthly average pricing, the light metal ranged in from $2,272 to $2,398 per metric ton in the first nine months of 2011. That reflects a trading range of about 9 percent from peak to trough during that 9-month period.

In the case of aluminum, the metal was at its low in January, drifted upward through May, and then began losing value. Its September average of $2,274 per metric ton put it almost exactly where it started in January. Demolition contractors selling their aluminum scrap, for the most part, received across-the-scale prices that stayed within a steady range.

LME copper, on the other hand, traded from as high as $9,866 per metric ton in February down to $8,313 in September, representing a steeper 16 percent drop. In the red metal’s case, there were fluctuations throughout the 9-month period, with the steepest drops occurring in May and September.

Aluminum’s ups and down were mild compared to copper’s in 2011. As portrayed by Recycling Today Global Edition (www.RecyclingTodayGlobal.com) contributor Steve Solomon of Solomon Metals Corp., Lynn, Mass., in the late summer, “There seems to be scrap available, but the problem is that getting commitments from consumers to buy it when they don’t know what the economic landscape will be for the next several months. It is very difficult to make strong sales in that type of environment.”

Uncertainty about Europe’s economy and figures that point to slower economic growth in China were helping contribute to copper’s price decline, as speculation now seems to figure into copper pricing much more than in previous decades. As well, new customs rules adopted by China on Aug. 12, 2011, led to “traffic jams” at several major ports.

“New regulations in China are continuing to throw confusion into how material can be shipped,” Solomon reported in the late summer. “Regulations seem to be changing constantly. People are unsure whether things will change even when things are en route. Just to get bookings of containers has been a challenge. The business is sort of changing on the fly.”

Solomon cited these procedural customs changes as being of greater concern than price fluctuations. “The volatility of the markets is no different now than it was or has been for the last several years,” he commented. “I think we have gotten used to the volatility of the markets. We can deal with that through hedging or whatever other means we use to lock our prices in. What we can’t get used to are the changing regulations that, even when good deals are made, things can change before the deals are done.”

When customs and inspection procedures change, both sellers and buyers can experience turmoil, Solomon noted. “There is sort of a lack of confidence that what was a good shipment previously, now when it gets there, the same material is a problem,” Solomon said.

“Whether the problems are market related or not is hard to tell,” Solomon added. “All these factors are creating a very frustrating trading environment with no answers. It is very hard and many of the exporters have been caught in the middle. It is frustrating on [the buyer’s] part as well. It is hard to get into deals knowing there could be problems and the kind of profits the traders are trying to make is not enough to cover potential problems.”

As of mid-December 2011, nonferrous recyclers contacted by Recycling Today magazine were expressing mild optimism for the year ahead. “I think the demand for autos in 2012 will be good,” commented one East Coast recycler.



The author is editorial director of Construction & Demolition Recycling and can be contacted at btaylor@gie.net.

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