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A long road back

Features - Regional Spotlight

The European Union’s economy has turned the corner to recovery, but the scrap recycling sector will need patience along the way.

Lisa McKenna March 6, 2014

Europeans can finally breathe a sigh of relief: Their economy has officially emerged from the global economic crisis and recession and is on the road to recovery. But there is a catch: it’s going to be a very long road for the scrap recycling industry.

Eurostat, the official statistics reporting agency for the European Union, previously reported that the EU had emerged from the recession during the course of 2013, when its gross domestic product finally moved to the positive side, reaching a .2% annual growth rate in the third quarter of the year, and a 1% annual growth rate in the fourth quarter.

The growth of Europe’s economy, while finally positive, is expected to be moderate for the time being, with the European Commission forecasting GDP growth of just 1.4% for 2014.

What’s more the statistics and first-hand commentary seem to bear out a sobering message for the scrap recycling industry throughout Europe: the recovery, certainly evident in the consumer goods and services sectors, may take some time to circulate through to the scrap recycling sector.

Toward that end, many recycling industry insiders are sounding notes of guarded optimism and concern in their observations about future prospects. Sources contacted express while the signs of recovery may be evident for the economy as a whole, a palpable turnaround for the scrap recycling industry is yet to arrive.
 

Looking up

“We have overcome the worst point and it’s slowly getting better,” observes Christian Rubach, president of the BIR (Bureau of International Recycling) Ferrous Division and an executive with Germany’s TSR Recycling.

Rubach and other European recyclers say that while the most recent economic figures look promising, the recovery is certainly not taking place at a pace or level where it can be felt by scrap metal recyclers at this point in time.

“I think the worst is behind us, but I don’t expect miracles and good news only,” he says.

Björn Grufman, present of the BIR and CEO of Sweden’s Metallvarden AB, sounds a similar note, describing most of the economic growth thus far as consumer driven.

“Disposal income is increasing and the money is used to consume but it’s not to the extent that any supplier wants to invest in a new factory,” says Grufman. But, he adds, these are the types of investments that are going to be needed for real economic growth.

Similarly, Robert Voss, president of the European Metal Trade and Recycling Federation (EUROMETREC) and CEO of the U.K.’s Voss International, says the Eurozone crisis of 12 and 18 months ago certainly seems to have receded in most countries. He names the countries of Ireland, Portugal and Italy as either recovered or on the road to recovery. However says Voss, the same can’t quite be said for the scrap recycling industry. “As far as metals are concerned, it’s dire to be honest, and we are not seeing any shoots of recovery.”

Voss says evidence of the continued gloominess is borne out by the restricted availability of scrap and a slow European manufacturing sector. “Replacement of vehicles or utilities or white goods hasn’t really started with a bang yet so we’re still in a very much low recovery position.”

Voss says with the length of the recent downturn at close to five years, it has been one of the longest recessionary periods in recent history. As such, he adds, “we’re taking an awfully long time to come out of it.”
 

Challenging times

Tom Bird, president of the European Ferrous Recovery & Recycling Federation (EFR) and U.K. managing director of Van Dalen Recycling, says that business conditions remain difficult.

“The reports that we’re seeing and the comments from the steel sector is that life is tough, and that is filtering down into the steel scrap sector as well,” he says.

Rubach says Europe’s scrap metal recycling industry has faced some fundamental changes in the last couple of years, some of them related to the world economic crisis. He refers to the countries of China, Turkey and India, the three largest export markets for Europe’s ferrous scrap, which during the boom years over the last decade, displayed growing demand for scrap metals and consumed unprecedented amounts of European exports.

However, he notes, “All these aspects do not exist for the time being,” as all three of these nations have reduced their scrap imports.

According to the most recent BIR World Mirror Report on Ferrous Metals, for the first nine months of 2013 Turkey reduced its scrap imports 13.1%, India reduced imports by 23% and China by 11%.

With regard to China, Rubach says the country appears to have more domestic scrap at the present time. “They reduced their scrap imports, and nevertheless increased crude steel production, so I think year by year they will increase their domestic scrap supplies,” Rubach observes.

Experts from within the scrap recycling industry working in both the ferrous and nonferrous scrap metals markets describe a loss of profitability that has been created by the current set of economic conditions.

On the ferrous side, says Rubach, while generation of scrap throughout Europe appears to be down, the problem is exacerbated by a battle among companies for the available material to keep their yards busy. He refers to very tough competition among European scrap recyclers for the available scrap. The very high prices being paid to buy the scrap, he says, “brings the feeling for the scrap industry that there is less scrap.”

Similarly, Bird says, the problem for ferrous scrap recyclers is two-fold: “There’s fierce competition from within the sector itself for the generation of scrap that’s out there, and the scrap that’s out there is under pressure as well,” he says.

Bird says prices on the scrap buying side are reflecting this intense competition. “We’re having to pay more for our raw material and we’re getting less of it,” says Bird. “That is not being reflected in what we can get for the material on the selling side, so clearly there is a margin squeeze.”

Voss describes a similar margin squeeze on the nonferrous side. “Normally you get demand [that] is good and supply is poor, or you get supply is restricted and demand is good. Now you’ve got both. You’ve got a certain limit to supply and you’ve got demand that is not great, and therefore margins are squeezed. So we are squeezed in three fronts on nonferrous.”

Another problem within the ferrous sector, sources say, is a certain amount of overcapacity that exists among steelmakers and recyclers alike. This overage may necessitate a certain amount of change, says Grufman. He says Europe’s steel industry may have as much as 30% overcapacity, with the ferrous scrap side of the industry possibly holding about the same. That could lead to structural changes throughout the industry, he says.

He refers to the January announcement that Swedish steelmaker SSAB was buying competitor Rautaruukki of Finland as a possible harbinger of things to come. Grufman says a number of steel mills in various parts of Europe, particularly in the south, are running at only half capacity, and some are talking about closing down.

“If they don’t get any demand there is no way they can run a steel mill on 50% of capacity in a profitable way,” says Grufman. He says the excess capacity is not likely to be taken up by increased consumption. “It will go away through a reduction of production and structural change.” And, Grufman adds, “I wouldn’t be surprised if we will see the same in the recycling industry.”

When it comes to scrap recyclers, Rubach says the excess is prompting some companies to try and secure more scrap, even at higher prices, to at least cover their fixed costs of labour and depreciation. He says capacity utilization in Europe for the larger auto shredders is at 50% to 60%.

“Too much was invested in the good times in the last six or seven years,” says Rubach, “and the traditional markets in Europe have broken away.”

Rubach says difficulty in Southern Europe’s steel industry is also changing some export patterns. He says countries such as Spain and Italy used to import steel scrap, but no longer.

“From the Northern standpoint, you cannot sell to them anymore because they are supplied by their own domestic industry and they are also bringing a surplus into the market,” Rubach explains. For example, he explains, Spain has recently begun exporting small amounts of scrap.

“They have their own scrap reservoir now and the Northern European states cannot sell to them anymore,” says Rubach, adding, “at least for the next 10 or 20 years.”
 

Better performers

Of course it’s not all bad news for Europe’s recycling industry. There are growth areas, and sources say positive changes will continue. Grufman says Germany’s car industry seems to be one of Europe’s success stories.

“The German car industry is exporting tremendously well and is doing well,” says Grufman, “so Germany is an island in itself for the moment and has a much brighter future than its neighbouring countries.”

Meanwhile Voss believes the economy of the U.K., and more specifically its London region, to be the strongest in all of Europe.

“There’s a lot of foreign money coming into the U.K.,” Voss says. He also points to a relatively strong pound, something that hasn’t been seen for a long time. “Property has shot up in certain areas, and our automotive business is good.”

Another area that is commonly mentioned as a regional hot spot for growth is Eastern and Central Europe. Voss says the strength witnessed across the region varies. “You’ve got places like Romania, Bulgaria which are suffering, there’s no question about it.” But he adds, countries such as Poland are developing well.

All in all, the growth picture for Europe, while ultimately good news for recyclers, is one that’s going to require patience. Perhaps Grufman expresses it best. “I think Europe has turned the corner but it’s a very, very long way back to the real growth where we have industrial investments.”

 


The author is managing editor of Recycling Today Global Edition and can be reached at lmckenna@gie.net.

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