Unexpected political events were the hallmark of 2016, and business decision-makers may well have entered 2017 wondering what could possibly happen next.
Geopolitical uncertainty by no means went away in 2017, but basic materials markets largely held steady nationally and globally throughout the year, yielding stable scrap flows, reliable demand and pricing that showed some volatility but not overwhelmingly so.
Scrap metal markets exhibited steadiness through mid-November, with U.S. steel output and overseas demand for ferrous scrap rising. Prices on the nonferrous side trended upward through mid-November, helping aluminum and copper scrap flow into yards at a healthy pace.
Recyclers of nonmetallic materials experienced greater drama, with the plastic sector’s story often playing out as a tragedy in 2017. The scrap paper markets experienced some pricing volatility late in the year but otherwise benefitted from consistently strong global demand for recovered paper.
In praise of stability
In the first 11 monthly buying periods of 2017, ferrous scrap prices took one sharp upturn (in March) and then did not experience a significant downturn until October.
The stability seemed to help the industry rebuild collector and peddler networks after a difficult late 2015 and early 2016.
Processors of prompt grades have seen strong automotive production, boosted in part in the fourth quarter by the need to replace vehicles totaled by a series of hurricanes in the U.S. South.
U.S. steel output in 2017 is up by 4 percent year on year as of mid-November, providing demand-side stability. An increase in ferrous scrap purchases from overseas buyers, reversing a several-year downward trend, offered an unexpected boost.
Through the first seven months of 2017, according to United States Geological Survey (USGS) figures, outbound ferrous scrap shipments increased by nearly 20 percent, rising from 6.69 million tons in 2016 to 7.98 million tons in 2017.
Turkey and Mexico each imported more than 1 million tons of ferrous scrap in that time, with Taiwan and China on pace to reach that figure by the end of the year.
That China is buying at that level may be a surprise to some industry watchers who foresee China’s era of having a ferrous scrap deficit coming to an end. Some processors in China reportedly have been shipping ferrous scrap to Southeast Asian nations. However, contrary to fears of a tipping point having been reached, China’s purchases of U.S. ferrous scrap nearly have doubled from 330,000 metric tons in the first seven months of 2016 to 610,000 metric tons in the same period of 2017.
The world keeps turning
The nonferrous sector has been more global than the ferrous trade, so a global economy featuring gross domestic product (GDP) growth proved beneficial to the aluminum and copper industries in 2017.
Copper pricing as gauged by London Metal Exchange (LME) contracts throughout the year shows it starting out around $5,700 per metric ton and trending upward, reaching $6,500 in September.
Choppy waters for nonferrous scrap processors and traders came in the form of policy initiatives and proposed directives in China relative to the future acceptance of some scrap grades.
In February 2017, the Chinese government announced a multiagency campaign called National Sword designed to prevent overseas shipments of contaminated or low-grade materials from entering the country. In July, some 1,800 facility inspections included scrap processing and sorting plants that handled wire and cable, motors and mixed shredded metals.
In August, China’s government approached the World Trade Organization (WTO) to seek its approval to ban several scrap materials. While this list had a heavier impact on plastics recyclers (as has much of National Sword), China’s government reportedly is determined to ban unprocessed scrap motors from the country.
Despite the unrest, red metal scrap shipments from the U.S. to China through July fell just 0.3 percent from 213,500 metric tons in 2016 to 212,800 metric tons in 2017.
Strong global demand for autos and trucks (and the aluminum alloys used in them) spurred steady markets for aluminum scrap in the U.S. and globally in 2017.
Two events in mid-November, however, may introduce drama into the secondary aluminum sector.
Aleris indicated that the deal was terminated after it had difficulty receiving approval from the Committee on Foreign Investment in the United States.
In the days prior to the Aleris announcement, shares in the holding company that owns secondary aluminum producer Real Alloy, Real Industry Inc., plunged to below 65 cents per share.
In late November, Real Industry filed for Chapter 11 debt restructuring and bankruptcy, citing difficult credit and financing conditions for its U.S. operations. Also in late November, Real Alloy Holding Inc. and its U.S. subsidiaries filed petitions for voluntary Chapter 11 reorganization.
The plastic scrap sector seems to have swept all the awards for drama in 2017, though many of the sector’s buyers and sellers would rather have avoided that honor.
National Sword had a greater impact on the plastics sector than on metal or paper, with nearly the entire industry thrown into a tailspin starting in the first quarter.
Steve Wong, chairman of Hong Kong-based Fukutomi Co. Ltd. and president of the China Scrap Plastics Association (CSPA), prepared a presentation for the 2017 Paper & Plastics Recycling Conference Europe, held in Warsaw, Poland, in early November, in which he indicated that some years this decade China had “absorbed more than 60 percent of world exports for plastic scrap.”
That activity hit a profound barrier in 2017 with National Sword and is unlikely to completely return
Wong said of the 24 items China asked the WTO to allow it to ban at year end, eight are postconsumer plastic scrap grades.
Subsequently, importers and shipping companies began easing back from these types of shipments as early as August 2017.
The mixed paper grade has been the target of similar scrutiny in China.
Craig Robinson of Cycle Link UK, speaking at the same conference, said Chinese mills at times in 2017 sharply reduced their orders, “hurt[ing] Chinese mills’ reputation” in the overseas market.
Questions about the Chinese market caused recovered fiber prices to drop steeply in early fall, though prices for many grades bounced up in November.