Stability and Steady Growth Projected for 1998

Scrap processors have benefited from the slow and steady growth pattern of the U.S. economy in the mid and late ‘90s. As long as no dark cloud is on the Pacific horizon, industry analysts and particip

The U.S. economy enters 1998 tentatively settled into a pattern of slow growth and low inflation. Those within the scrap and recycling industries by and large feel that if that pattern continues their companies will have an enjoyable 1998.

There are exceptions—scrap copper is facing weakened demand, and there are concerns about the future of municipal recycling in many markets. But if the economies of North America are not negatively affected by the slowdowns in Asia, 1998 could well be another year of strong activity and favorable prices for scrap processors and other recyclers.

FERROUS MARKETS TO REMAIN STRONG UNLESS TOUCHED BY ASIAN FLU

Electric arc furnaces hungry for scrap should keep demand strong in the ferrous scrap market. Most of the EAFs that came online in the mid-1990s are now operating at or near capacity.

Demand for steel, of course, remains the important factor in the ferrous scrap equation. As long as mills continue to produce, ship and sell steel, scrap melts will continue to be necessary at the front end of the mills.

“If the economy stays good, so will the market for steel,” offers John Correnti, president of Nucor Corp., Charlotte, N.C. While acknowledging that new entrants in the market have created price pressures, he says that “right now, demand is good.”

Correnti predicts that U.S. steel makers will ship as much—or nearly so—as they did in 1997. “We’ll be up a little bit,” he says of Nucor in 1998. “We always run at full capacity.”

The situation in Asia—and the fear that lagging economies there will soon affect North America—is one dark cloud that is particularly visible on the Pacific coast. “I couldn’t give you any kind of forecast,” says one west coast steel company executive. “We really don’t know where the hell we are,” he adds, noting that it was too early to determine if or how the American steel and scrap industries would be affected by the Asian situation.

Jim Nuckels, chief operating officer of Pacific Coast Recycling, Long Beach, Calif., is not as unsettled. “I suspect that we will see a slowdown for a month or so, but I think it will alleviate,” he says. As he spoke in mid-December, Nuckels noted that his firm was currently loading a ferrous scrap ship bound for Asia, and another large shipment was scheduled for January.

“I think we will see export prices drop a little, but not drastically,” says Nuckels. He believes that international banking authorities have demonstrated their ability to intervene and prevent floundering national economies from becoming systems with a full-scale, prolonged crisis.

Within the scrap industry, consolidators seemed to pick up the pace in late 1997, with all three of the major consolidators (Philip Services, Hamilton, Ontario; Metal Management Inc., Chicago; and Recycling Industries Inc., Englewood, Colo.) announcing deal finalizations and/or tentative agreements in December.

After Philip Services closed on a    series of acquisitions in late 1997, one trade newspaper printed a figure estimating Philip’s share of the total North American ferrous scrap market. It could signal the creation of a yardstick that will be used to measure the gains made by the three consolidators and any privately held processors who wish to compete at their level.

NONFERROUS A MIXED BAG

More aluminum is being smelted than perhaps at any time in history – a factor that would seemingly override any narrower concerns within the aluminum scrap market. Indeed, until November and December, demand for aluminum scrap was strong throughout 1997 and prices remained healthy toward the end of the year while other nonferrous scrap prices dropped.

One red flag that has appeared in the late ‘90s is the weakening of the aluminum can within the soft drink packaging market. Plastic bottles – having taken most of what was left of the glass soda bottle market – are now muscling in on aluminum can territory. 1995 may have marked the peak year in volume for soft drinks packaged in 12-ounce aluminum cans. While aluminum content within vehicles helped offset any noticeable impact, the next slowdown in the auto industry may have a greater impact on aluminum demand than existed previously.

Michael Kirk, manager of Golden Metals Trading LLC, Littleton, Colo., sees the domestic demand for scrap aluminum growing at about 2 percent in 1998. “I think it’s going to start out fairly slow, but it will build from there.” He adds that aluminum cans still have a solid future in the beverage industry and that he sees the increased use of aluminum in vehicles as a trend that will continue.

Kirk is optimistic that the Asian turmoil will not have any significant impact on the North American economy. “I think we’ve already seen the ripple effect,” he said in mid-December. “I don’t think it will have a major influence here,” he remarked, adding that he felt it was closer in overall economic significance to the U.S. S&L debacle than to the 1930s-era global depression.

Says merchant broker Stanton Moss, Bryn Mawr, Pa., “Barring seasonal factors such as severe weather and heavy snow, I think it’s going to be a good quarter for secondary aluminum.” He believes domestic manufacturers will continue to consume aluminum scrap at a pace similar to last year’s. Moss believes the Asian situation presents a wild card that could potentially offer a disruption in aluminum scrap consumption and shipping patterns.

As was forecast in 1996, increased copper mine production has brought prices down for secondary copper. Copper, which traded as high as $1.15 per pound in May of 1997, is being forecast to trade in the $.80 to $.85 per pound range throughout 1998. (Some analysts feel it could go lower.) Even though demand for copper may remain strong, the output from new and expanded mines will force scrap copper processors to offer low prices to compete with plentiful primary copper supplies.

Nickel, too, is being mined extensively, making things tough for nickel alloy scrap processors. One forecast presented at the Australian Nickel Conference held in late 1997 predicted a global surplus of 10,000 tons of nickel in 1998. The same forecaster sees the per pound price of nickel heading well below $3.00 by the year 2000.

UNPREDICTABLE PAPER MARKETS 

Forecasting more than one week ahead remains a daunting task within the secondary fibre markets. It is safe to say that, as with metal markets, the strength of the overall U.S. economy remains a key to the health of the forest products industry. But while the slow-growth economy has lessened volatility in many industry segments, the same cannot be said for most secondary fibre markets.

The last quarter of 1997 alone witnessed weekly fluctuations in OCC prices, the Asian economic crises that weakened demand from one Asian economy after another, and a reported strengthening of demand for mixed office paper.

Thomas Bowers, president of Schirmer Paper Corp., Boston, says the OCC fluctuations are seasonal and not a source of widespread concern. “There’s always an excess of material after the holiday season,” he notes. “We feel that the demand could strengthen in 1998, and supplies could become a bit tighter come March or April.”

Demand from tissue and paper towel makers is helping the mixed office paper market, says Bowers. “In the last two quarters of 1997, we saw more consumption on the tissue side,” he remarks.

Old newspapers are also moving well. “I don’t see any inventories sitting in printing plants or MRFs. Material is moving,” says Bowers. While the near-term future of  Asian economies is a concern in this sector, “right now we’ve compensated with more domestic shipments,” he says. Many others in the industry, however, are concerned about reported mill closings in South Korea and other Asian nations.

The fourth quarter of 1997 witnessed several grades of fibre market prices on the Pacific coast fall below those in other regions of North America, due largely to depressed Asian export conditions.

PLASTIC HOPES FOR SMALL GAINS

Competition from low-priced virgin resins will most likely continue to make things tough for many plastics recyclers. But there are those within the industry who remain optimistic that as a plastic recycling infrastructure solidifies, secondary resins will become more competitive.

Indeed, within the PET segment, demand for bales of recycled materials outweighed supply during most of 1997, according to Dennis M. Sabourin of Wellman Inc., Shrewsbury, N.J. “I think the price will be stable to upward in 1998,” Sabourin says of recycled PET. “The demand is very high,” he adds, citing the carpeting and apparel industries as the primary consumers of recycled PET.

The market for recycled HDPE also looks stable. “We’re at the point where secondary resin pricing will follow virgin resin pricing levels,” says Dwight Ensley, president of Ensley Corp., North Canton, Ohio. “Virgin prices lowered in 1997, and I expect to maybe see a little bit of the same in 1998. Prices should be fairly stable.”

“I see demand as flat,” says Gerry Claes, general manager of Graham Recycling, York, Pa., regarding recycled HDPE in 1998.

The market for recycled PVC remained almost non-existent in 1997, but the Vinyl Institute is hinting that it will have a major announcement regarding PVC recycling in the first quarter of 1998.

ARE MUNICIPAL PROGRAMS IN DANGER?

1997 witnessed several high-profile media attacks on the merits of curbside recycling. Several city councils also began taking a look at their recycling programs, questioning the cost-effectiveness of programs that may have been set up at a time when prices for commodities such as old newspapers were much higher.

While recycling detractors may have gained some headlines, it is unlikely that municipalities throughout the country will jettison their programs, one consultant predicts. “What we saw in 1997 was an increased amount of scrutiny in terms of municipal recycling programs,” says Robert Craggs, director of environmental services at the Central States Office of R.W. Beck, Inc., Minneapolis.

Much of that scrutiny is overdue, says Craggs. Many programs may have been put in place with the unrealistic expectation that the sale of collected materials would pay for the programs. “That myth is still out there,” he notes.

When it became clear that—in most cases—recycling was not a profit center, taxpayers were quick to ask for changes. “As a result, most local governments have been put in a position to make their programs more cost-efficient,” says Craggs.

In short, says Craggs, elected officials and administrators need to manage their programs more closely and be willing to make changes in the collection, processing and marketing of recyclables.  “What I see is changes in programs,” says Craggs, citing examples such as cutbacks in pick-ups from weekly to every two weeks, or canceling the collection of commodities with floundering prices.

Who will do the collecting and processing also remains a pivotal question heading into 1998. The large waste hauling firms have almost uniformly backed away from recycling by selling off and/or shutting down processing centers. There are companies specializing in the operation of MRFs, however, stepping in to fill the processing void.

PRECIOUS METALS HEAD IN VARYING DIRECTIONS

While gold, silver and platinum are not likely to lose the descriptive adjective “precious” any time soon, only two of the three metals have recently lived up to that billing.

Silver and platinum are both in demand from industrial users and jewelers. For silver, mine supply has not kept pace with demand for nearly a decade, according to The Silver Institute, Washington. With platinum, an unstable supply situation (particularly in Russia, as reported in the December 1997 Recycling Today) exists.

Is gold due for a rise in price? 1997 saw gold fall below $300 an ounce in December, a depth in price it has seldom seen in the ’80s or ’90s. Speculators and investors are again buying gold, however, perhaps figuring that the time is right to try to bottom feed.

INDUSTRY IS STABLE, AS LONG AS ECONOMY IS

Whether they are participants in the scrap processing, secondary fibres or curbside recycling industries, most of those contacted pegged their forecasts to the strength of the overall economy.

Their comments seem to indicate that even segments of the recycling industry once considered experimental or uncertain now see themselves as part of the overall global economic picture. While that view offers stability on the one hand, it is coupled with the realization that events thousands of miles away (in this case, in Asia) may have a bearing on what type of year they have in 1998.

The author is managing editor of Recycling Today.

January 1998
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