Exports Show Signs of Strengthening

The United States has seen more nonferrous than ferrous scrap export activity in recent months, as steel mills around the world experience some softness coming off the summer months and there is significant domestic demand for ferrous scrap. Despite the Sumitomo copper trading scandal, overseas demand for copper – as well as other nonferrous scrap – has remained fairly strong. There are also hints that China’s scrap demand, slowed by the country’s ban of low-grade copper scrap and its new recycling permitting requirements, could be picking up, and that Japan’s market may be strengthening.

Overall, nonferrous scrap exports in the last four to six weeks have been very strong, says Rick Schwartz, executive vice president of Calbag Metals Co., Portland, Ore. Copper scrap has been in tight supply, and his company has seen Japan buying copper more aggressively than that country has done in years. "It’s been welcome to see the Japanese come back," says Schwartz. "They certainly seem to have a heck of a lot more interest in doing business than six months ago."

Other parts of Asia are also buying. "Korea has maintained a fairly aggressive stance toward red metal, and China’s still in great demand and need of clean copper scrap," he says. "So there’s been quite a push, regardless of what happens with Comex and the LME."

Copper trade slowed down when the news of the Sumitomo trading scandal hit, says Schwartz, but demand has since picked up. "And there was not enough domestic scrap generated in the Far East to pick up even the slight increase in demand for Japan and Korea," he says. "That made them net buyers, which has pushed scrap to a very tight relationship to primary."

There has also been fairly good demand for aluminum, says Schwartz, although it does not compare to copper. "The demand has been spottier for aluminum than red metals in the last six to eight weeks," he says. "The Japanese, again, are buying some aluminum, which is welcome, and Korea has been relatively steady."

Although the nonferrous export business is still fairly decent, it doesn’t recall the glory days of the late 1980s, says Phil Waldman of Alpert & Alpert Inc., Long Beach, Calif. "That may be a reflection of changing market conditions rather than the demand that exists for it based on the current market prices," he says. "There’s a lot of resistance sometimes to prices – people are ecstatic when they can sell scrap at high prices, but on the other hand, the buyers get very finicky because they’re paying a lot of money, so they’re not necessarily going to accept product unless it’s absolutely top-notch, grade A stuff."

His company, which has steady customers in Pacific Rim countries such as Japan, Korea and Taiwan, has not seen the Japanese buy any more scrap than usual. "The Japanese export market for consumer goods that flow to this country is not as strong as it was in the past, even though our trade deficit with Japan is still pretty healthy," says Waldman. "This would indicate that we’re still buying a lot of Japanese electronics for which the demand for copper is still fairly strong." The Japanese auto industry still uses copper for all their wiring, he adds, so this is a market that will remain strong for the foreseeable future.

Although China has made importation of certain nonferrous scrap very difficult by banning what they call Category 7 materials – including materials such as insulated copper and electric motor scrap – some material is still being shipped, according to Schwartz, for those who can get the permits. Nevertheless, shipping to China is not as easy as it used to be.

"It is difficult to ship low-grade items to China, no question about it," says Schwartz. "It has forced China to look to buy more high-grade material and has made the competition for scrap – and therefore the differential between scrap and prime – artificially or unusually tight," he says. "What they are trying to do makes sense, which is stop people from polluting. But I’m not sure they are going to succeed. And they may be making it more difficult to import raw materials that the country needs."

There have been reports that Chinese buyers, as well as COSCO, the main shipping line to China, are requiring pre-inspections by survey firms such as SGS, says Schwartz. "I’m told you have to show the operating permit of the company as well as an SGS report certifying that what you’re shipping is what the company is buying," he says. "I’ve also heard that the Chinese inspection bureau has to inspect the cargo before it can be released, as well."

Although there have been reports in the Chinese newspapers that these import restrictions are largely caused by shipments from U.S. recycling firms containing medical waste and radioactive waste, Schwartz is skeptical that a U.S. company would exhibit such a lack of judgement.

"It would violate good business practice, and U.S. law, if they didn’t ship what they were supposed to ship," he says. "There are Coast Guard laws and all types of laws about shipping that are in force for U.S. companies. So I’m not sure I would agree that these types of enforcement are necessary – it’s just cumbersome."

China’s ban on low-grade copper scrap has had a big affect on the market, agrees Grace Chan, senior trader for Pacific Metals Ltd., Vancouver, B.C. A number of containers have been stalled in Hong Kong or Chinese ports waiting to be inspected, and Chinese buyers are all required to get import permits, which has slowed trade, she says.

"There has been a lot of inconvenience during the last three months while the Chinese importers are waiting for the officials to act, and things cannot move in there," she says. "Meanwhile, they are paying demurrage for containers in the harbor. And the shipping lines are not happy because their equipment is not getting used."

It’s likely that the market will pick up again once the Chinese businesses get re-permitted, as the country needs this recyclable material, she says. However, the Chinese market is always changing, so it’s impossible to predict what will happen during the next few months, she cautions.

Overall, there is strong growth potential for North Americans exporting nonferrous scrap to that region, according to Chan. "Asia is going to be pretty promising for the near future," she says.

Ferrous scrap exports are currently fairly weak, due at least in part to seasonal factors – overseas mills closing down for summer holidays or taking some downtime because electric costs are so high – so many exporters are turning their sights inwards toward the domestic market in the U.S., according to Rick DeMass, director of international trading for the David J. Joseph Co., Cincinnati.

"The world economy in the steel business today is pretty soft, and a lot of the exporters around the world can’t sell their scrap to the steel mills because they can’t sell their finished product," he says.

However, the U.S. steel industry is still fairly strong. This may result in steel mills from other countries attempting to sell finished and semi-finished steel products into the U.S. sometime within the next six months, says DeMass. "When that happens, there’s going to be an oversupply of finished steel, and then some of the steel mills here may start having some trouble. We’re starting to see that happen now, with countries such as Russia and the Ukraine looking to sell material into the U.S."

Although this will probably not be a long-term problem, he says, the global steel industry may be in for some challenging times until worldwide economies pick up.

China is not a big buyer of ferrous scrap from the U.S., so the recent complications with doing business there have not affected ferrous exporters, according to James Buckland, vice president of ferrous export and shipping for Sims-LMC Recyclers, a division of Simsmetal USA Corp., Richmond, Calif. But one factor that has had an impact is the increased exports of ferrous scrap from Japan over the past six months or so.

"They certainly are filling some of the requirement, especially in Korea," says Buckland. "My guess is that’s going to die down by the end of the year – the Japanese are going to start keeping that scrap at home."

There is also some Russian steel on the market, which diminishes the demand for U.S. products, he says. And the Asian economies are somewhat sluggish, although Japan seems to be coming back. "I think that the market is going to come back, but I don’t think it will be really fast, because Asian mills have some excess steel inventory they need to get rid of," he says. "The market’s going to be sideways to soft for a while."

"It was a very quiet summer," says Ed Hollander, president of Hollander Metals, Glenview, Ill. "You have a situation today where the Koreans – who are probably the biggest buyers of ferrous scrap in the Pacific – are overstocked on finished goods, so they’ve really cut back on purchasing from the U.S. They’re basically running on scrap from Japan. Plus, the Koreans’ own scrap market is becoming more sophisticated. So they’ve really stayed out of the market."

As for other overseas markets, Taiwan, India, China and Japan have bought very little from the U.S. All the Pacific Rim countries seem to be buying scrap from Europe, where the prices are depressed and there is a freight advantage, says Hollander. Turkey has shown the most demand recently. Overall, the U.S. has exported only a modest amount of ferrous scrap in recent months.

The best potential buyers for ferrous scrap exported from the U.S. are countries in which the steel industry is still at a rapidly developing stage but there is a limited domestic supply of scrap, according to John Jacobson, president of Jacobson & Associates, Rochester, N.Y.

"Japan was in that category for many years, but of course their steel industry has matured, and they’re basically producing as much scrap as they need and even exporting some," he says. "Korea and Turkey fit into that category, and that’s why they’re so important for scrap exports."

China, an important market due to the country’s sheer size, may become more of a buyer of ferrous scrap from North America, says Jacobson, as the country looks mroe towards electric furnaces.

In the near future, there will probably be less U.S. ferrous scrap available for export as some of the new mills start production during the next few months and ratchet up the domestic demand for scrap, according to one U.S. steel producer. Some estimates put the new flatrolled capacity coming online in the U.S. at 10 to 15 million tons annually, whereas only 8 to 10 million tons are exported each year.

"The question is how much of that export stream will be desired and useful to the new capacity that’s coming on," says Jacobson. "Is it high enough quality for domestic producers, and is it easily accessible to their plants?"

There’s a trend in the U.S. toward more captive scrap operations, he adds. In addition, Russia is a wildcard in the international scrap and steel scenario. "They have more iron units than they know what to do with."

Hollander sees a pickup in the ferrous export market later this year. "We’ve got some depressed prices and depressed activity, but you’ll see a turnaround, maybe in November or December," he says.

The author is editor of Recycling Today.