BIR Conference Discusses Commodity Outlook

Statistics support a bright future for ferrous scrap

“I see a future where demand for scrap is going to grow larger, which means supply of scrap is going to remain tight, which means prices for scrap are going to stay high,” the latest BIR Ferrous Division and Shredder Committee Roundtable was reassured by guest speaker Steve Mackrell, Director of Operations at the London-based Iron & Steel Statistics Bureau.

None of the experts on hand at the London convention contradicted Mackrell’s rosy assessment of the future, which was backed up by an array of impressive statistics. The guest speaker calculated, for example, that the world’s steelmakers would require an additional 32 million metric tons of scrap this year to support the anticipated 9 percent increase in global crude steel production to 1.05 billion metric tons. The global requirement for merchant scrap had risen from 235 million metric tons in 1998 to 292 million metric tons this year, and was likely to reach 388 million metric tons by 2010, he added.

Chinese steel production was continuing to show ‘solid’ growth despite government measures to cool the domestic economy and the country’s scrap imports were likely to advance from 9 million metric tons in 2003 to 11 million metric tons this year. ‘And the Chinese economy could actually remain in this steel-intensive mode for possibly another 20 years,’ ventured Mackrell. Meanwhile, India’s move towards electric arc steelmaking had increased the country’s scrap requirement by 4-5 million metric tons in the last four years. That said, uncertainty had been created by the introduction in India of a new import control policy.

Estimating that the merchant scrap trade had a global value of around $60 billion per year, Mackrell highlighted that around 30 percent of this total volume - equivalent to some 85 million metric tons - was exported across international borders. He observed: ‘The areas where recycled scrap is processed tend to be those areas where steelmaking is not growing, and the areas where steelmaking is growing tend to be the areas that are not self-sufficient in scrap generation - so we have a physical problem.’ With no major increase in dry cargo vessel capacity anticipated over the next three to four years, ‘shipping costs will continue to rise’, he added.

Mackrell also emphasized that the world’s leading 10 steelmakers were responsible for only 28 percent of global production. “Steel is still relatively fragmented,” he commented. “Larger steel companies will have greater purchasing power. I think it also means they’ll want to form relationships with trusted suppliers who can also operate on a global basis. Perhaps ferrous scrap companies need to consider consolidation and becoming global players.”

According to BIR Ferrous Board member Jeremy Sutcliffe of Sims Group Ltd in Australia, the guest speaker’s figures confirmed the industry’s own sense of a ‘squeeze’ in the market whereby demand for scrap was outstripping availability. In his report on the Pacific Rim market, Sutcliffe expressed confidence in market prospects for the first quarter of 2005.

Ferrous Division President Robert Philip of Hugo Neu Schnitzer Global Trade in the USA also reported a ‘bubbly’ economy for steel and scrap.

The EU market report submitted by Ferrous Board member Anton van Genuchten of TSR GmbH & Co. KG in Germany highlighted the region’s 1.8 million metric tons export surplus in the first half of 2004, while BIR Ferrous Division Vice-President Denis Ilatovskiy of Russia’s Mair Joint Stock Company predicted that his country’s ferrous scrap exports would leap 70 percent in 2004 to around 12 million metric tons.

China’s crude steel production jumped 21.6 percent to 194.15 million metric tons in the first nine months of 2004, according to the Roundtable’s other guest speaker Zunqing Yang, Deputy Secretary General of the China Iron & Steel Association. Apparent consumption in China had been some 16.22 percent higher over the same period at 229.21 million metric tons. However, the speaker acknowledged the need to intensify consolidation within the domestic steel sector, as well as problems associated with shortages of iron ore, electricity and transportation.

Dramatic fluctuations appear set to continue

Despite some ‘rebalancing’ of the nickel market during 2004, prices should remain firm in the first half of next year, the BIR Stainless Steel & Special Alloys Round-Table in London was informed by guest speaker Jim Lennon from Macquarie Research Metals and Mining. His company’s latest charts suggested an LME cash price average of $13,558 per metric ton for this year, rising to $14,881 next year.

Lennon agreed that speculation had played its part in the current bull market - ‘but not the central one’. He emphasized the pivotal role of China whose nickel consumption had risen by 84.4 percent between 2001 and 2004. The same country had also been responsible to a large extent for a 45.2 percent increase in global production of 200 series stainless during 2003 and for a predicted 37.6 percent increase in the current year. However, the 200 series was ‘a bit of a time bomb - particularly from the scrap recycling perspective’, Lennon contended. ‘This is giving stainless a bad reputation, particularly in external applications.’

Zunqing Yang, Deputy Secretary General of the China Iron & Steel Association, confirmed that stainless steel constituted an important area of development in his country. New production projects were being approved and a ‘very big’ capacity increase was envisaged over the next two or three years.

Sandro Giuliani of Giuliani Metalli-Cronimet Group, Chairman of the BIR Stainless Steel & Special Alloys Roundtable, reflected that nickel and stainless steel scrap prices had been on a ‘roller-coaster’ throughout the year and further volatility appeared inevitable in 2005. ‘Dramatic fluctuations’ had swept nickel from a high of $17,700 on January 6 to a low of some $ 10,500 in May, then from approaching $16,000 in July to around $12,000 in September. A price close to $17,000 had been regained in early October prior to another sharp down-swing, he reported.

The constant production growth experienced by the stainless steel industry included an 11.2 percent increase last year to 22.5 million metric tons, with analysts predicting totals of 24.3 million metric tons and 26.8 million metric tons for 2004 and 2005 respectively. Nickel producers had taken into account rising demand and attractive prices, but their higher outputs had still failed to match the increased demand. High prices had led to a substantial supply of scrap in the early part of 2004, but de-stocking during this period had reduced availability in the third quarter.

Extreme volatility was also emphasized by Barry Hunter of Hunter-BenMet Assoc. in his report on the US market. ‘Three-month LME nickel has already dropped within this month (October) some $3,500 a metric ton - a drop that would equate to about $280 a metric ton decrease in calculating for nickel content values in 18/8 scrap,’ the report noted.

U.S. mills remained ‘aggressive’ purchasers of scrap while exports were running at similar levels to last year, with China, South Korea, Finland, Taiwan and India absorbing more than 80% of its offshore shipments.

Ildar Neverov of Teplovtorresource in Russia, a member of BIR’s Stainless Steel & Special Alloys board, noted a high availability of stainless steel scrap in his domestic market over recent months due to elevated purchasing prices.

Another board member - Stuart Freilich of Universal Metal Corp., reported ‘spectacular’ market conditions during 2004 for vacuum prepared nickel alloys, titanium alloys and refractory scrap. He also predicted that these markets would remain firm throughout most of 2005 ‘but with higher levels of price volatility’.

Stiff’ target for used tire recovery

“Mixed’ progress towards the ‘stiff’ EU target of 100 percent recovery of used tires was reported at the BIR Tires Roundtable in London by guest speaker John Dorken, Director of the British Rubber Manufacturers’ Association. The landfilling of whole tires had been banned since 2003 and shredded tires would not be accepted at landfill sites from July 2006. ‘And so we have less than two years to get our act together in Europe,’ he warned.

Reviewing progress to date, he noted that the Scandinavian countries had achieved 100 percent recovery several years ago whereas Spain, for example, had recorded a rate last year of just 40 percent.

Some EU countries - notably the UK and Germany - had favored a free market approach to achieving the target, whereas others had opted for producer responsibility schemes or tax systems.

Dorken anticipated that producer responsibility schemes would be in place in most states by 2006, not least because these provided a strong management framework where an ‘immature’ market existed. Where no such producer scheme was put in place, however, manufacturers could be expected to remain fully involved and to help where practical, ‘particularly with monitoring and auditing systems’.

According to Dorken, major manufacturers wanted ‘close involvement’ in the pursuit of the 100 percent recovery goal because of a ‘growing acceptance of producer responsibility in dealing with the environmental impact of products’. This approach reflected corporate social responsibility but also ‘enlightened self interest’ since ‘governments will turn to manufacturers if things go wrong and so there is some advantage in pre-empting this possibility,’ he said.

The Dutch recycling scheme for used tires would succeed because of the level of controls in place throughout, the Roundtable was told by its Chairman, Barend Ten Bruggencate of VACO in The Netherlands. He said: ‘It is a totally controllable system because money is involved from the start. Also, all the stakeholders are checked and if they are not qualified, they are out.’ All collectors had to be accredited to ISO 14001, he pointed out.

The scheme revolves around a fixed fee for recycling and a responsibility imposed on manufacturers and importers to collect scrap tires at zero cost in line with market share. By the start of 2005, 20 percent of these scrap tires by weight had to be recycled as raw materials in useful applications such as sports pitches and safety tiles, explained Ten Bruggencate.