On Solid Footing

Canada’s scrap materials continue to flow in the midst of ongoing global economic worries.

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May 15, 2012

Canada’s economy has displayed an impressive level of tenacity in recent years, in spite of the global recession from 2007-09, which the U.S. felt acutely. Considering the United States is still Canada’s largest trading partner, it’s not surprising that economic shock waves experienced in the States are felt north of the border.

Even so, Canada’s economy has managed to hold its own, growing by an average of 2.2 percent in 2011, compared with 1.7 percent growth in the U.S.

Now, with further global economic worries on the horizon, Canadian economists are sounding tones of guarded optimism. The two most concerning situations, slowing growth in China and the euro zone debt crisis, threaten to undermine Canada’s growth story. But metals processors doing business in Canada still express confidence in their economy, referring to steady material flow and solid demand.
 

Solid Performance
Conversations with metals processors throughout Canada indicate that material flows have remained relatively steady thus far in 2012, boosted by regional economic strength, industrial retooling and a solid construction sector.

Construction in Canada has been a bright spot in recent years, with the exception of 2009. According to Statistics Canada, this sector out-performed all other goods-producing industries in 2010 in terms of GDP, growing by 6.6 percent between 2009 and 2010.

Meanwhile, in recent months, scrap processors say materials have been flowing consistently for the most part. “We’re not in a declining situation, we’re not in a booming situation,” says Len Shaw, executive director of the Canadian Association of Recycling Industries (CARI), Ajax, Ontario. He adds that local demand for secondary materials such as scrap remains evident. Shaw estimates that Canada historically generates from 16 to 18 million tons of scrap materials annually.

Saleem Shaban, executive director of Fortune Metals, Toronto, and a major shareholder of its parent company, The Lucky Group, based in Dubai, United Arab Emirates, says he believes Canada’s economy is clearly stronger than other countries’ economies. For instance, he says, post-2008, construction dropped by only 10 to 15 percent in Canada, which pales in comparison with the U.S. drop of nearly 60 percent. Shaban adds that Canada’s construction industry recovered in just one year.

Similarly, Kevin Golberg of Lorbec Metals in St. Hubert, Quebec, believes the recovery occurred more quickly in Canada. Up until 2012, Lorbec operated five yards: three in the U.S. and two in Montreal. The U.S. yards, in Michigan and New York, branched off on their own this year as Lorbec Metals USA.

“The metal flow in terms of sheer numbers in Canada has returned or surpassed pre-2008, for both ferrous and nonferrous,” Golberg says, “but the mix has changed in Canada.” He explains that Lorbec’s two Montreal yards have seen more demolition scrap and less industrial scrap.

“For some reason, our peddler trade has increased,” Golberg adds.

Conversations also indicate regional differences in the strengths and types of scrap flows. On the downside, Ontario, which accounts for about half of all the material flowing in Canada, has experienced losses in its historically strong auto manufacturing sector.

“It’s our major province for manufacturing, and its been hit with plants going offshore,” Shaw says, referring to recent automotive plant closures there.

Conversely, Shaw says the provinces of Alberta and Saskatchewan have been reasonably strong in terms of materials flow, owing to the recent boom in oil sands mining and processing there. “They’re looking for people and are in need of materials,” Shaw explains.

Sebastien Perron, general manager of American Iron & Metal (AIM) Co.’s Laval, Quebec, location and vice president of global aluminum sales, agrees demand for scrap material continues to be high. AIM operates 46 locations in Canada from Winnipeg to Halifax. Perron says the warm winter may have kept metal flow unusually consistent this year, preventing the traditional spring thaw volume rush. He says he’s also seen modest growth in construction scrap and other areas. “We feel some pickup in the industrial business, especially aerospace,” Perron adds.

Meanwhile, construction has shown a small uptick in material flow, Shaw says, and he expects strengthening particularly out West in Alberta, British Columbia, including Vancouver, and also in Toronto, where a building boom continues.

As for demolition scrap, processors are mixed about material flow. Sheldon Jarcaig, vice president of Canadian operations for Ferrous Processing & Trading Co., based in Detroit, and immediate past president of CARI, notes that in Ontario the demolition segment experienced a 25 percent drop in activity since the recession. He acknowledges that two large demolition projects in the last two years have possibly contributed a “fair amount of demolition scrap,” but for the most part describes a contraction. “Overall I’d say it’s been steady but certainly not overwhelming,” Jarcaig observes. He points out fewer players are in the marketplace because of consolidation.

Meanwhile, Golberg says demolition scrap in Montreal has seen a boost from the closure of pulp and paper mills. “They finally have made the decision to demolish the plants,” he explains.

Shaw says the demolition area looks promising in coming years, based on the need for community improvements. “There is a lot of concern of our infrastructure requiring replacement in metropolitan areas,” Shaw says. He offers Ottawa’s recent initiative to replace its sewers as one example.
 

Recession Lessons
Canadian processors also say the recession didn’t seem to affect material flow as significantly as in the U.S. According to Shaw, a CARI survey indicated that Canadian scrap flow was reduced by about 15 percent because of the recession, but historic volumes have since recovered.

Perron agrees Canada’s reaction to the recession was somewhat milder. “I think we’re probably getting a better flow percentage-wise compared probably to companies in the U.S., where things haven’t picked up as much,” he says. “We didn’t go down as far, so we don’t have as far to climb back up.”

Golberg expresses similar beliefs. “We sell probably 75 percent of our scrap to the United States,” he says. “Speaking with some of those people, they’re still looking for scrap that doesn’t seem to be there.”

As further evidence, Perron says AIM is moving metal into some areas in the U.S. where it’s been more costly to do so typically. “We’re finding consumers are sometimes willing to compensate for the freight difference because they need the metal,” Perron observes. “For us, the flows are good. I can’t say they’re slow.”

Jarcaig observes that during the last three to four years, the amount of prime scrap generated in Ontario has decreased by approximately 25 to 30 percent, as industrial business has migrated into the Southern U.S., Mexico and China. Even with the decrease in prime grades, he says the Ontario steel mills have been able to secure their required tonnages locally.

“Flows of industrial and obsolete grades can be described as being healthy, to say the least,” Jarcaig says.

He also describes a “robust market” in the Western provinces and a healthy level of demand. “There is currently an abundance of scrap available in Western Canada, and the excess material has been marketed into the Southern United States or to the West Coast for export,” he adds.

While the recession wasn’t as painful in Canada, it did have repercussions in the marketplace, some processors say, most notably, a trend toward speculating.

Shaban says he believes this behavior stems from the volatile 2008 ferrous price swing from $700 per metric ton to $140 before stabilizing at around $425.

Shaban says collectors tend to pay attention to the $50 spread that has remained since 2009. “If it goes below $400, it becomes unworkable for collectors and scrap yards to justify the cost of collecting,” he says. “If it goes above $450, it becomes unworkable for the end users to make the finished product.”

On the nonferrous side, some hedging also is evident these days, says Candy Gagnon, a nonferrous buyer for Bonus Metal Canada Inc., based in Montreal. “When the hedge funds come into the market or when consumer sentiment is positive, we can see spikes on copper,” observes Gagnon, “and this is when we see more material coming into the yards.”
 

Cautious Optimism
Looking ahead to the rest of 2012, many processors remain cautiously optimistic.

“I think the general tenor in Canada is that it will be a sort of a moderate to average year,” Shaw says. “They don’t see it picking up, and they don’t see it dropping through.”

And while the global economy may be headed into a smoke storm, scrap dealers aren’t taking those worries to heart.

“Even with that and the uncertainty going on around the world economy, I don’t think that it’s being perceived by scrap dealers and others involved in the industry as a major concern,” Shaw says. “It’s sort of business as normal. It’s not as bad as ’08 and ’09, it’s not as high as ’06 and ’07.”


 

The author is a managing editor with the Recycling Today Media Group and can be reached at lmckenna@gie.net.