After ferrous scrap processors received a healthy price boost in August, many had anticipated further strengthening in the market during the September buying period.
Unfortunately for them, according to the monthly averages issued by the Raw Material Data Aggregation Service (RMDAS) of Pittsburgh-based Management Science Associates (MSA), ferrous scrap shippers received anywhere from $4 to $34 less per ton on the spot market in early September.
There were considerable regional disparities in price movements in September, with prices in the RMDAS South region (consisting of Alabama, Arkansas, the Carolinas, Florida, Georgia, Louisiana, Mississippi, Oklahoma, Tennessee, Texas and western Virginia) actually rising $1 per ton for shredded scrap and losing just $4 per ton for No. 1 heavy melting steel (HMS).
In all regions, including the South, the RMDAS prompt industrial composite grade (consisting of No. 1 busheling, No. 1 bundles and No. 1 factory bundles) lost value in September compared with August, with a $19 average national price drop.
Pricing in the North Midwest region (consisting of Illinois, Iowa, Kansas, Minnesota, Missouri, Nebraska, Wisconsin, the Dakotas and the northwest corner of Indiana) experienced some quirky behavior in September, with shredded scrap falling $34 per ton. While shredded scrap there fetched the highest price of the three regions in August, it plummeted to the lowest per-ton price in September.
Nationally, per-ton prices for shredded scrap were higher than for prompt grades, creating an anomaly that was the subject of discussion at the Institute of Scrap Recycling Industries Inc. (ISRI) Commodities Roundtable Forum in Chicago in September.
When asked about the narrow price difference between prime grades of ferrous scrap and the shredded and HMS grades that had been experienced in the summer of 2012, panelists at the Ferrous Roundtable pointed to melt-shop preferences.
Even though prime grades may have been tempting at the price, EAF (electric arc furnace) melt-shop managers “tend to not like change,” said Fred Hauptstueck of Steel Dynamics Inc., Fort Wayne, Ind., so they have continued to buy shred despite the narrower spread.
John Keyes, a district trading vice president with Tube City IMS, Glassport, Pa., agreed with that assessment, noting that buyers from integrated mills with more flexibility in their feedstock “were the winners” during that timeframe, when “big, heavy square things were on sale.”
Roundtable moderator Frank Goulding of Newell Recycling of Atlanta LLC, East Point, Ga., asked panelists about the reintroduction of price volatility in the ferrous scrap market in the summer of 2012.
Michelle Applebaum of MARI, Highland Park, Ill., said the answer was tied to the lower operating rates of steel mills in the United States.
As mills adjust their production levels, said Applebaum, “I would estimate that for the next five to seven years, until mills start operating at a higher capacity,” ferrous scrap price volatility will be part of the picture, she commented.
To combat the volatility, many steel producers are turning to direct reduced iron (DRI) and other scrap supplements, and the timing may be right to do so, said Applebaum. Previously, the high cost of natural gas presented a barrier to the widespread use of this feedstock. However, the abundance of natural gas being produced in the eastern United States has lowered that cost significantly.
Mills that are concerned about a shortage of ferrous scrap may not need to worry too much, said Keyes. “I’m amazed at the number of places scrap will come from over the years,” he commented, pointing to the demolition of steel mills, automotive plants and rail cars.
More recently, Keyes said he had seen scrap coming from the demolition of paper mills throughout North America and sugar mills in the Southern U.S. and the Caribbean region.
“It’s a resilient market; when the scrap price makes it affordable, demolition follows,” he remarked.
On the demand side, Keyes said the recent slowdown in Chinese economic growth has had a ripple effect on ferrous scrap demand in Turkey. “Chinese billets are being sold there for a cheaper price,” he said, “so [Turkish mills] are shutting down their electric arc furnaces (EAFs) while keeping their rolling mills going.”
The ISRI Commodities Roundtable Forum was Sept. 11-12 at the Hyatt Regency Chicago.
September 2012 Spot Pricing
|North Central/ East||North Midwest||South|
|Prompt Industrial Composite||$394||$393||$388||$404|
|#2 Shredded Scrap||$398||$401||$376||$406|
|#2 Shredded/Change vs. Month Before||-$10||-$7||-$34||+$1|
Mill buyers doing spot purchasing were able to get scrap for an average of $10 to $12 less per ton in September compared with August.
Reported regional aggregated spot market prices per gross ton shown for each commodity are based on all Management Science Associates (MSA), Pittsburgh, Raw Material Data Aggregation Service (RMDAS) participants’ actual order data submitted to and processed by MSA as of the 20th of each respective “buy month,” rounded to the whole integer. A map of RMDAS regions is available at http://rmdas.msa.com, as is a further explanation of RMDAS methodology and an accompanying disclaimer.
No. 2 shredded scrap is defined as containing 0.17 percent or greater copper content. The prompt industrial composite consists of an average of No. 1 bundles, No. 1 busheling and No. 1 factory bundles. Additional pricing information on each grade can be found at www.RecyclingToday.com.
© 2012 Management Science Associates Inc. All rights reserved RMDAS is a trademark of Management Science Associates Inc.
(Additional information on ferrous scrap, including breaking news and consuming industry reports, can be found at www.RecyclingToday.com.)
(Comments about production figures made by Stan Lancey of the American Forest & Paper Association [AF&PA] should have been on capacity figures. The AF&PA does not forecast production figures.)
A number of North American paper producers are struggling with declining demand for their products in response to falling newspaper and magazine circulation and sluggish consumer spending.
The newsprint sector faces numerous structural problems that are putting pressure on newsprint producers in North America, resulting in mill shutdowns and bankruptcy protection filings. Some newsprint mills have even retooled to be able to produce other paper grades.
The printing and writing sector also has seen downward pressure, as sales of print magazines and office paper decline.
The corrugated container industry, the largest sector of the U.S. paper industry, also has been buffeted by the sluggish domestic and global economies. Overall demand for linerboard and corrugated medium, which are used for packaging and transporting numerous consumer goods, won’t rebound significantly until the global economy starts to improve.
A recent report from Standard & Poor’s (S&P) points to sluggish economic growth as the primary reason behind the rating service’s neutral outlook regarding demand for containerboard, corrugated products and boxboard. S&P adds that the lack of significant additional supply in the United States should keep markets for paper-based packaging producers balanced and support its neutral outlook for pricing across this segment.
Extending its focus, S&P predicts stability for the paper and forest products industry. According to the company, meaningful capacity additions in North America are likely to be limited to tissue papers, where there is growing demand, fueled largely by population growth. Companies such as Clearwater Paper Corp., Spokane, Wash., and Georgia-Pacific LLC, Atlanta, are expanding.
However, S&P’s outlook for printing and writing paper demand remains unfavorable given the increasing consumer shift away from paper to electronic media. S&P predicts this sector will see demand decline by mid-single-digit percentages during the next year. Printing and writing paper capacity shutdowns have largely kept pace with declining demand, while lower input costs (i.e., pulp and energy) have stalled efforts to raise finished paper prices. The result, according to S&P, is a slightly unfavorable outlook for printing and writing papers for the next 12 months.
Outside the U.S.
Stan Lancey, an economist with the American Forest & Paper Association (AF&PA), Washington, D.C., says the export market offers opportunities for some paper and board producers.
“Worldwide demand is growing at 2 to 3 percent per year,” he says. And while the U.S. paper industry traditionally has been an importer of finished paper products, Lancey says the domestic paper industry has reached “an inflection point” and is now exporting more finished product than it is importing. This situation should help offset some domestic decline.
An increase in demand from countries outside of North America could help to consume a fair amount of U.S. production, Lancey adds.
While the different sectors of the paper industry must contend with many of the same macro-economic issues, each of the four key sectors also is grappling with its own unique issues.
Lancey reports that total paper and paperboard production reached close to 90 million tons in 2011. That figure, he adds, likely will decline to 88.7 million tons in 2012. Going further, paper and board capacity will show modest incremental increases in the next two years, with 2013’s capacity total reaching 89.3 million tons and 2014’s figure possibly reaching 89.7million tons.
In the News
The North American newsprint industry appears to be in the midst of structural changes that likely will result in a different and smaller sector over the next several years. The problems with the newsprint industry are not limited to North America, however. Newsprint producers throughout Western Europe also are confronting sharply reduced demand for their finished product.
A recent report by Boston-based RISI, an information provider for the global forest products industry, notes that demand declines in North America and Western Europe and slower growth in many developing countries will result in the removal of an additional 3.5 to 4.4 million metric tons of newsprint capacity throughout the world.
The RISI report, titled “Global Newsprint Risk of Closure,” notes that newsprint demand declined by 3.7 percent in 2011. However, RISI says it expects to see an increase in global newsprint demand as the global economy strengthens.
EPR and the Paper Industry
Despite the challenges facing the domestic paper industry, Cathy Foley, sector vice president for the Washington, D.C.-based American Forest & Paper Association (AF&PA), says the industry is striving to reach a 70 percent recycling rate by 2020, a figure the industry is rapidly closing in on. Foley says the rate is currently at 66.8 percent. Even more impressive, she says, is the containerboard recovery rate, which is greater than 90 percent.
However, the quality of the recovered material is a concern for consuming mills, Foley says. To remedy this, she says the AF&PA is working to educate communities in areas such as collection practices.
Another issue confronting the domestic paper industry is extended producer responsibility (EPR) legislation. Foley says a number of states are considering EPR for post-consumer packaging. “We are not saying that we don’t have responsibility, but don’t lump us in with other commodities,” she says.
She adds that the paper industry has had great success in recycling without the need for state legislators dictating policy.
The decline in newsprint demand is forcing significant changes among producers in North America. Canada-based Catalyst Paper filed for Chapter 15 bankruptcy protection in January of this year. (Under U.S. bankruptcy laws, Chapter 15 grants a foreign company protection from creditors with a claim on its assets in the country.) The company was scheduled to close its recycled newsprint mill in Snowflake, Ariz., Sept. 30 because of flagging demand for its finished product, raw material price volatility and escalating freight costs.
Greenwich, Conn.-based SP Newsprint filed for Chapter 11 bankruptcy protection in November 2011. SP Newsprint Holdings LLC completed the sale of the business to SP Fiber Technologies LLC (SPFT) Sept. 10, 2012.
Following the acquisition of SP Newsprint, Jay Guarandiano, the newly appointed president and CEO of the company, released a statement that reads, “While newsprint will remain the foundation of the business for the foreseeable future, the company is looking forward to aggressively developing an innovative value-added packaging component to service the paperboard, containerboard and converting marketplaces.”
SP Newsprint’s Chapter 11 reorganization was converted to a liquidation under Chapter 7 of U.S. bankruptcy law shortly after the company’s sale to SPFT.
Montreal-based Resolute Paper, formerly AbitibiBowater, the largest newsprint producer in North America, also has been shedding capacity during the past several years as it seeks to balance supply with demand. The company indefinitely closed its newsprint mill in Nova Scotia, Canada, this summer. The idling is expected to reduce capacity by 250,000 metric tons.
Paper recyclers have been affected by the problems in the newsprint sector on both the collection and sales side. For material recovery facility (MRF) operators, a steady decline in newspaper circulation has resulted in fewer old newspapers (ONP) available for recovery at their facilities. While many MRFs were designed to handle large amounts of ONP, the sharp decline in the actual volume of material has forced some to adjust their operations.
On the sales side, fewer end markets for collected material have led to shifts in ONP grades. As well, more recyclers are opting to commingle ONP with other bulk grades, such as mixed paper and even old corrugated containers (OCC), creating a broader, less consistent grade of fiber, according to sources. As well, even less clean deinked news is available for users who require that grade.
Another consuming sector that has felt the impact of lower-quality ONP has been the building products industry, which often relies on clean, dry ONP for its furnish.
Put it in Writing
The printing and writing (P&W) paper sector also has seen its share of challenges over the past several years. Many of the largest P&W producers have been cutting production and closing mills as they seek to balance supply with demand. Declining demand for P&W products largely results from a decline in magazine production. Figures from the Magazine Publishers of America show that the annual combined paid and verified average circulation per issue of magazines has fallen to levels last seen in 1980.
Miamisburg, Ohio-based NewPage, one of the largest producers of printing and writing paper in the United States, filed for Chapter 11 bankruptcy protection in the middle of August 2012. The filing follows the company’s failure to put together a merger with Memphis, Tenn.-based Verso Paper Corp., another large printing paper producer, which recently permanently closed its Sartell, Minn., mill because of fire.
For paper recyclers, a steady decline in generation of higher grades of office paper has increased competition for material. As of early fall, the market for high grades has been slumping, though many sources say it is nearing bottom. These recyclers forecast strong demand for office-generated paper not only from printing and writing mills but also from tissue mills and other end markets.
The tissue sector is a bright spot for the North American paper industry. Figures from the AF&PA show 2011’s tissue production at slightly more than 8.6 million tons. Going forward, the AF&PA sees modest growth for this sector.
Producers of P&W papers and newsprint, however, clearly face challenges ahead as they struggle with declining demand for their products.
The author is senior editor of Recycling Today and can be contacted at email@example.com.
The aluminum rolling and recycling company Novelis, headquartered in Atlanta, has received the 2012 Georgia Governor's International Awards in the International Deal of the Year category. The company was recognized for opening its Global Research & Technology Center in Kennesaw, Ga., in 2012, its commitment to the Atlanta area and its economic impact on the state.
Novelis' Global Research & Technology Center serves as a hub for the company’s R&D and engineering efforts to create aluminum for products including beverage cans, cars and consumer electronics. The 160,000-square-foot facility opened in June and consolidated the company’s research activities in one location near its Atlanta headquarters.
The center contains testing laboratories, a pilot beverage can production line and meeting space. Novelis says further expansion is planned.
"When looking for a place to bring together top scientists and engineers, as well as drive collaboration with our customers, the Atlanta area was the clear choice," says Stefan Erdmann, Novelis vice president of global R&D. "With our nearby headquarters, world-class international airport and excellent universities, we couldn't have chosen a better location to develop the next generation of sustainable aluminum products."