In early November, as this edition of Recycling Today went to press, metal recyclers were expressing optimism for one of the few times in 2016, as copper pricing was trending upward and the November ferrous scrap buying period featured one of its rare upswings during the calendar year.
For recyclers of most materials, 2016 will not go into the books as either particularly bad or particularly good. Paper recyclers might have enjoyed the steadiest amount of supply, demand and positive price movements, while low virgin plastic prices continued to make things difficult for plastics recyclers.
The biggest complaint of metal recyclers concerned the lack of retail scrap flow, though ferrous scrap recyclers (in particular) also experienced too many months when their inventories lost value from one month to the next.
The overall tone in 2016, when reading the comments of recyclers that were collected by Recycling Today staff members throughout the year, was one of managing materials and businesses through steady bouts of turbulence, much as a pilot must guide a plane through crosswinds.
Home on the range
After ferrous prices plunged dramatically in the fourth quarter of 2015, recyclers in that sector headed into 2016 hoping for better but likely preparing for the worst.
The year started with a $20-per-ton price rise in January, helping to regain some of the value lost during the stressful conclusion of 2015. The year’s single biggest price movement was in April, when prices for some grades zoomed upward by $50 per ton, followed by another gain in value in May.
By the end of May, shredded and prompt ferrous scrap were trading in the $275-per-ton range, closer to where it had been before the October 2015 plunge. The summer and early fall saw prices move downward steadily, with shredded scrap back in the $200 range by October. The November rebound has provided another bit of volatility to be managed by processors, traders and mill buyers. (For more on the ferrous market, see “Scale House Blues,” in this issue.)
In the nonferrous sector, neither the value of copper nor aluminum returned to the days when metals producers in those sectors were adjusting to China’s rising consumption levels. In the aluminum sector in 2016, it was not unmet demand that was the prevailing story but rather an oversupply of finished metal.
Arlington, Virginia-based The Aluminum Association was, by midyear, calling for “a series of common sense measures on the part of the U.S. and Chinese governments to ensure a level playing field where all global aluminum producers can compete fairly.”
Sounding much like steel industry trade associations in the developing world, The Aluminum Association states, “Subsidized production in China, which is leading to unfair and illegal trade practices, threatens the industry’s continued health.”
For U.S.-based nonferrous recyclers, the impacts of perceived overcapacity in China have included suppressed pricing and muted demand for scrap from secondary producers in North America.
Although a healthy global auto industry consumed record amounts of aluminum, the considerable output in China met that demand. Thus, aluminum, as measured by London Metal Exchange (LME) pricing, traded in a narrow range throughout the first three quarters of 2016, with its lowest monthly average value at $1,522.73 per metric ton (69 cents per pound) in June, and its highest being $1,560.45 per metric ton (71 cents per pound) in January.
Other than an erratic first quarter, even the often-volatile copper market experienced a less dramatic year in 2016 than in several prior ones in terms of pricing. Through the first three quarters of 2016, the LME average monthly value of primary copper had peaked in March at $4,946.52 ($2.24 per pound) while hitting its low in January at $4,461.85 per metric ton ($2.02 per pound).
The complaints of red metals recyclers largely focused on limited supplies of scrap. This was tied, many recyclers said, not so much to the lower value of copper compared with the peaks of 2002-2014 but rather to the reduced value of ferrous scrap in much of 2015 and 2016.
Metals recyclers—whether in the ferrous, nonferrous or both sectors—commented throughout the year that the collection or peddler network that had built up in the first 15 years of the 21st century had largely gone looking for other things to do as the amounts of money they received at the scale dwindled.
Measured by pricing, the old corrugated containers (OCC) grade was one of the success stories of 2016, having largely risen in value through most of the first eight months of the year and, after a slight dip in September, holding steady as of mid-November.
Containerboard and corrugated boxes, unlike ink-on-paper forms of communication, have retained their market share and provided paper recyclers with a reliable source of supply and demand.
The demand for North American OCC remains global, with mills in China and other parts of Asia buying whatever cannot be consumed domestically.
North American containerboard production is in line with, or perhaps even straining, mill capacity, according to figures collected by the Washington-based American Forest & Paper Association (AF&PA). Through the first three quarters of 2016, the year-to-date operating rate of mills in the containerboard sector was 95 percent, according to the AF&PA.
As impressive as that rate is, it is 1 percentage point lower compared with the first nine months of 2015. For metals recyclers who are used to reading steel mill capacity figures that in many months of this decade have had difficulty exceeding 75 percent, the health of the containerboard sector is apparent.
The graphic papers sector, whether measured by newspaper, office paper or junk mail output, continues its decline in North America. In a presentation he made at the 2016 Paper Recycling Conference Europe in Rotterdam, Netherlands, in early November, Bill Moore of Atlanta-based Moore & Associates said the phenomenon is global.
In 2015, newsprint production fell 13.7 percent in the United States compared with the year before, while production in Europe fell 7.8 percent and in China it dropped by 9.2 percent, Moore said.
For recyclers, Moore said it is not surprising that the old newspapers (ONP) grade is “a supply-short grade.” Demand for ONP remains strong globally from consuming mills in Asia and around the world.
Plastic packaging is just as omnipresent as containerboard, but plastics recyclers did not enjoy the same conditions as OCC recyclers in 2016. Two factors are making life difficult for recyclers of plastic packaging: 1) low oil pricing, which yields low-cost primary polyethylene, polypropylene and other types of plastic during the refining process, and 2) the complexity of the plastic packaging stream, which makes collecting and reprocessing plastic containers costlier than recycling containerboard.
In his presentation at the 2016 Plastics Recycling Conference Europe, which also was in Rotterdam in early November, Roger Evans of United Kingdom-based Recapture Plastics, which is targeting mixed rigid plastics containers for recycling and reprocessing, said Recapture has secured financing from a variety of sources to equip a plant with 16,000 metric tons of annual capacity, but it wasn’t easy.
He said low resin prices and recent plastics recycling failures made financing his current venture difficult. Just 5 percent of his funding came from banks, while 8 percent came from equipment vendors and 28 percent from asset financing, including a mortgage on his own home.
Although year-end global trade statistics will not be finalized until well into 2017, 2016 has been shaping up as the fourth straight year of decline in cross-border trading for several secondary commodities.
As it has been throughout the 21st century, China remains central to these statistics, and the tapering off of global trading can be tied to that nation narrowing its scrap deficits.
“In 2015, newsprint production fell 13.7 percent in the United States compared with the year before, while production in Europe fell 7.8 percent and in China it dropped by 9.2 percent.” – Bill Moore
According to figures presented by Institute of Scrap Recycling Industries (ISRI) President Mark Lewon at a November 2016 industry conference, copper scrap exports from the U.S. have been declining since 2011.
Lewon, who also is CEO of Salt Lake City-based Utah Metal Works, said copper scrap exports have declined from 1.24 million metric tons in 2011 to 954,000 metric tons in 2015. Each year in between recorded a decline in exported tonnage. Each of those years, China has been the leading export destination.
Statistics gathered by the United States Geological Survey (USGS), Reston, Virginia, show 2016 following the same pattern. In the first half of the year, 447,700 metric tons of red metal scrap were exported from the U.S. If the second-half volume matches that of the first, that would put the year-end total at 895,400, representing a 6.1 percent drop from the previous year.
Even with reduced scrap demand, events and conditions in China had considerable impact on recyclers in North America and other parts of the world in 2016.
As noted earlier, China’s steel and aluminum producers have been pointed to by producers in other parts of the world for excessive and (according to accusers) subsidized metal output.
Well before The Aluminum Association began criticizing what it considers excessive exports of finished aluminum from China, the American Iron and Steel Institute (AISI) had been decrying the unrelenting output of finished steel by Chinese state-owned enterprises.
AISI’s position in 2016 and before that, as stated on its website, is that “China—a nonmarket economy, a significant exporter and by far the world’s largest steel producer—has disrupted world markets through state support of expanded production of steel and steel-containing products.”
The overcapacity has reduced the output of steel producers in North America and has reduced global demand for ferrous scrap. With China’s steel output being overwhelmingly iron ore-dependent basic oxygen furnace production, much of the market share it has taken away from steelmakers in other parts of the world is made with the scrap-dependent electric arc furnace method. The result has been lower steel and lower ferrous scrap prices in the U.S.
Another impact China has made involves an inflow of Chinese capital into the basic materials and recycling industries. In late August 2016, an investment company created by the owners of Chinese aluminum producer Zhongwang International Group Ltd. announced its intention to buy U.S.-based secondary and rolled aluminum producer Aleris.
Also in late August, Hong Kong-based Chiho-Tiande Group Ltd. announced its acquisition of Germany-based scrap recycler Scholz Holding GmbH. In addition to operating scrap yards throughout Europe, Scholz also owns a stake in yards in the United States operating under the Liberty Iron & Metal name.
To veteran recyclers, the investment activity may be reminiscent of the surge in Japanese investments made in U.S. metals production and recycling assets as its corporations were seeking to build a global footprint. Two or more decades later, some of those stakes in the industry remain, while other Japanese investors have subsequently exited.
There are no guarantees as to which trends and story lines will continue into 2017, but the interest of Chinese investors in the U.S. basic materials sector is a topic about which many recyclers will remain curious.