A Tale of Two Scrap Tire Programs
May/June 2002
At the event, held March 10-14 in Las Vegas, ReMA did indeed embrace change, including electing new national officers. Ending his term as ReMA chair, Sam Hummelstein of Hummelstein Iron & Metal Inc. (Jonesboro, Ark.) passed the leadership reins to Charles “Cricket” Williams Jr. of Charles Williams & Son Inc. (Richmond, Va.).
Normally, ISRI’s board of directors elects the new chair with a unanimous chorus of “aye” votes. This time, board members ushered in the Cricket era by raising their arms and voting via hand-held “cricket-clickers.”
After the cricket sounds and laughter died down, the board rounded out the slate of national officers by voting in Chair-Elect Joel Denbo of Tennessee Valley Recycling L.L.C. (Decatur, Ala.), Vice Chair Frank Cozzi of Metal Management Inc. (Chicago), and Secretary/Treasurer George Adams of Adams Steel (Anaheim, Calif.).
In his acceptance speech, Williams affirmed his belief that ISRI’s mission is to help its members be more profitable. “We need to be engaged in any activity that increases the profitability of private-sector recyclers,” he said. “Profits are the engine that generates growth, and the more growth we have in the industry, the more growth we’ll have in ISRI.”
Williams acknowledged the hard work of ISRI’s previous national leaders, whom he credited with establishing “a fully informed and engaged board of directors and committee structure that’s poised to do great things for our membership.”
While serving as ReMA chair is no easy job, Williams is used to challenges. In his 30 years of service to ReMA and its predecessor ISIS, he has helped the industry face many difficult issues, including the fight for Superfund liability relief. That’s why Williams’ customary outfit—jeans and a blue blazer—is so appropriate. “Jeans are something you wear when you have hard work to do—and that’s what we have, hard work to do,” he said.
It wasn’t hard work, though, to find ways to enjoy ISRI’s 15th annual convention. The event’s exposition, social events, general sessions, commodity spotlights, and 20-plus workshops truly offered something for everyone. In case you missed some of the action, here’s a look at the highlights.
Keeping Current on Commodities
Onward and Upward for Aluminum. After weathering an “ugly” fourth quarter, the U.S. aluminum market is bouncing back, bolstered by evidence that “the recession is over,” said Lloyd O’Carroll of BB&T Capital Markets (Richmond, Va.) at the spotlight on aluminum.
Leading economic indicators have been improving in recent months, suggesting that the manufacturing sector is finally rebounding, he noted. Unemployment claims are down sharply, consumer confidence appears to be stabilizing, housing starts have held up, and North American auto production has been climbing modestly.
The current economic recovery, however, won’t be as robust as previous recoveries primarily because there’s no pent-up demand, O’Carroll said. The current recovery will likely show GDP growth of 4.5 to 5.5 percent in its first four quarters compared with the historical average of 6.3 percent. The global economic outlook is also looking up, with GDP growth projected to be 2.4 percent this year and 4 percent in 2003.
The improving economic conditions bode well for the U.S. aluminum market, which rebounded from the “ugly” final quarter in 2001 to post increases in orders in January and February, O’Carroll said, though he noted that “things are rising from a very low base.” This year, domestic primary aluminum shipments could grow almost 7 percent to 20.2 million tons, with the transportation sector leading the way with almost 11 percent growth to 7.3 million tons, he reported.
As for prices, aluminum could inch up from its 2001 average of 65.5 cents a pound to 67.2 cents this year, growing further to 76.8 cents a pound in 2003, O’Carroll said.
On the scrap side, the steep decline in manufacturing last year reduced the supply of new scrap, which has led to a scrap shortage that could extend into the summer. “In the short term, get your hands on all the scrap you can,” O’Carroll said. “Several months out, certainly by June or July, the worst should be over and you’ll get back to more normal conditions.”
Scrap prices, meanwhile, have been ratcheting upward in recent months, and the scrap-to-prime ratio has also been rising. “In the next few months,” O’Carroll said, “scrap will move up faster than prime as long as we continue to have some kind of shortage.”
Aluminum’s Automotive Promise. In a talk titled “Riding With Aluminum,” William Bosanquet of Pechiney World Trade USA (Stamford, Conn.) focused on aluminum’s use—and its prospects—in automotive applications.
The transportation sector is currently aluminum’s largest market, accounting for 33 percent of global aluminum consumption, and the light metal will likely continue to gain ground in auto applications, Bosanquet said. By 2005, U.S. vehicles could contain an average of 320 pounds of aluminum, while European and Japanese cars could have an average of 275 pounds, he reported.
Aluminum offers several advantages in the automotive niche compared with competing materials, Bosanquet said. For one, it is a light metal, which enables automakers to lighten their vehicles to improve fuel efficiency and reduce pollution. Also, aluminum parts put less weight on the front axle in front-wheel-drive cars, leading to better car-weight balance and improved braking distances, Bosanquet noted. In addition, cars with aluminum offer better “crumpability”—the ability to absorb energy in accidents. The aluminum pressure-casting process also reportedly offers advantages compared with traditional castings. And last but not least, aluminum is highly recyclable, he pointed out.
Copper—Poised for Growth? Copper demand has grown an average of 3 percent annually for years, yet stocks now exceed 1 million mt and prices dipped below 70 cents a pound earlier this year. The same scenario played itself out in 1999, when many scrap firms took hits or hoarded material awaiting better times.
With the economy on the mend, though, domestic demand is increasing again, overseas consumption is rising in some sectors, and most major analysts see higher prices this year, said experts at the spotlight on copper.
Offering some market perspective, John Gross of J.E. Gross & Associates Inc. (Bayshore, N.Y.) noted that global refined copper consumption—which rose 40 percent from 1990 to 2000—declined 4 percent in 2001, the worst decrease since the 1970s.
In addition, combined copper stocks on the LME and Comex recently reached a record 1.3 million mt, Gross reported. Fortunately, production cutbacks of about 500,000 mt this year could boost prices.
According to Gross, copper is “moving into a period of higher price volatility due to the activity of funds, which have a big impact on the market.” As evidence, he noted that the market experienced two 4-cent price spikes recently despite a lack of any fundamentals to support those moves. He also noted that a market “disconnect” occurred last October when prices turned upward even as stocks continued to rise.
Steven Butler of Asarco Inc. (Phoenix) concurred, asserting that commodity “macrofunds” using computer-driven buy/sell signals are moving the market in ways that may have nothing to do with fundamentals.
Better times are on the way for copper, Gross predicted, noting a more positive global economic outlook, stronger anticipated U.S. growth, and continued expansion in Asia, which accounts for nearly 40 percent of total copper consumption. China continues to import concentrates and other raw materials to feed an appetite that drove its consumption up 25 percent last year, Butler noted. Also, he added, stabilization in the C.I.S. region means that copper consumption there will continue to grow steadily, while U.S. demand is underpinned by high housing-start levels in recent quarters.
In the short term, copper prices may decline again, Gross said, though he noted that growth in global economies and population will push prices higher over time. “The trend is your friend,” he said. “It may not continue going up, but it is going up. It isn’t out of the question to talk about $1 copper again and even new highs within the next two or three years.”
Steel Struggles Back. Prolonged periods of low prices, consolidation, globalization, and increased government regulation have been facts of life as much for the iron and steel industries as for scrap recyclers, said Donald Huizenga of Kurdziel Industries Inc. (Muskegon, Mich.) at the spotlight on ferrous.
“We commiserate with you,” he stated. “You’ve had as much bad news in your industry as we’ve had in the foundry industry.” As proof, he offered these grim statistics: around 30 U.S. steel companies in Chapter 11; 40 foundries closed or in Chapter 11 in the past 12 months; and 400,000 U.S. manufacturing jobs lost in recent years.
Many of the stricken companies cited unfair offshore competition as the basis of their woes. “Globalization is not a passing fad. It’s here to stay,” Huizenga asserted. “They say speed kills, but today, lack of speed kills. We have to deal with change.” He characterized the “speed culture” as a new concept that deals in ambiguity and change in commerce. The events of the past 18 months underscore the need for companies to be able to react to change quickly, he said.
The ferrous spotlight also highlighted Paul Lowrey of Metal Strategies Inc. (West Chester, Pa.), who noted that the 1990s were great for steelmakers, with record demand, unrestricted capital, unrestrained capacity expansion, reasonable pricing (until 1998 at least), and a phenomenal economy. The current decade, in contrast, has brought recession, declining steel demand, capital starvation, shutdowns, and reduced capital expenditures.
Last year alone, U.S. steel demand declined 15 million tons, 11 percent below the previous year’s record level, Lowrey reported. Meanwhile, import penetration into the U.S. market grew from barely 15 percent in 1990 to more than 26 percent in 1998. While imports have since declined, they’re still high—about 20 percent—by historical standards, he said.
Steel prices, meanwhile, “have toppled to historically low levels and are now below the manufacturing costs of many producers,” said Lowrey. Prices for hot-rolled coil reached a low of about $210 a ton late last year. Though they’ve risen slightly since then, they’re still far below the average of $340 a ton in the 20-year period through 2000. “If prices keep falling at the rate they have been, we can assume that steel will be free in 40 years or so,” he said wryly.
Like Huizenga, Lowrey noted the financial troubles in the U.S. steel sector, pointing out that “over half of the integrated steel industry in this country is in bankruptcy.” Overall, “it’s mind-boggling how much overcapacity there is globally in steel,” he said. “There are too many companies—as many as 14 U.S. steelmakers all chasing the same small number of consumers.”
Industry consolidation is long overdue and is now being prompted by dire industry conditions, with the consolidation effort being led primarily by Nucor and U.S. Steel, he said.
Despite this glum situation, Lowrey said that a number of steel policy initiatives could redress the U.S. steel industry crisis. The Bush administration has embarked on a three-part plan that includes import tariffs under the Section 201 case, plus international negotiations to reduce excess capacity and eliminate government subsidies. An emergency steel loan-guarantee program is also a boon to steelmakers and could help offset the legacy costs that are crippling the industry.
In the future, Lowrey sees a gradual recovery driven in part by declining imports, which is starting to create a supply squeeze. Lower imports are occurring at the same time that shuttered domestic capacity is reducing product availability. Also, the U.S. economy is turning upward again. These factors have led to price increases recently ranging from $30 to $60 a ton on most products.
Lead and Zinc—Still on a Losing Streak? Lead continues to defy apparent fundamentals, with prices continuing to be generally lower than demand would suggest. Given lead’s supply-and-demand picture, prices should begin to rise—though it’s difficult to predict when, said George Kleinman of Commodity Resource Corp. (Reno, Nev.).
“I think we all agree that the fundamentals for lead don’t make sense,” he stated. “In the long run, the fundamentals always move the market, but it’s the short term that’s the problem. It’s the unknown that we’re dealing with. As an old trader’s adage goes: ‘The market can remain irrational longer than you can remain solvent.’”
Because price behavior is so difficult to predict, many traders and market analysts put their faith in technical methods, many of which are based on moving averages. A 30-day moving average gives a good indication of the interim movements of the market, said Kleinman, who sees a buy signal if a metal’s price closes above the 30-day average on two consecutive days, and vice versa. A 52-week moving average can be used as well, in which case a buy or sell signal would be two weeks of closings above or below that average.
Recent moving averages and market behavior suggest there may be light at the end of the tunnel for lead. All metals broke above their moving averages in early March and late April, indicating that something positive is happening in the macromarket picture, noted Kleinman. A market recovery, in fact, could be sharper than many have predicted, he said.
“When you have a cheap market for a long time, that market is going to break out at some point. The funds couldn’t push down the price and keep it there unless the fundamentals bear that out,” Kleinman said. By the same token, funds can also work in a seller’s favor by pushing prices up to “irrational levels.”
Another bullish sign for lead is that trading volumes have been exceedingly thin recently, which usually indicates that a market or price cycle is bottoming out. “I think the lead market is looking for an explosive upside movement at some point,” Kleinman said.
A second factor hobbling the zinc industry is the relationship between miners and custom smelters. “Custom smelters have very little interest in the zinc price,” White said. “They don’t have much exposure to the price either, except for price escalator and deescalator clauses in contracts. And despite their protestations, the custom smelters have made money.” As evidence of this, White noted that virtually all of the plants to come onstream recently have been custom smelters.
Even so, mining companies deserve the larger share of the blame for oversupply and low prices, he said. “I believe that it’s the responsibility of the miners—not the smelters—to correct supply imbalances in the market. If they cut back output, the smelters wouldn’t have anything to smelt.”
There have been some factors beyond the control of miners and smelters, such as the huge amounts of zinc that flooded the market after the fall of the Soviet Union. By late 1994, LME stocks had risen to an astronomical 1.2 million mt, and it took nearly three years for prices to show any significant recovery.
Commodity funds are another factor beyond the control of miners and smelters. According to White, such funds have the clout to move the price in seeming contradiction to market fundamentals, and they are neither knowledgeable nor rational in their effect on the market. When they sell, they force the price down due to their sheer size in the marketplace, he said.
Last but not least, China’s zinc production has had a bearish effect on the market, White noted. Chinese smelters take in large amounts of concentrates, but the nation is a net exporter of metal units and now accounts for an estimated 6.1 percent of world output.
On the bright side, LME stocks—though still high by historic standards—are less than half the levels seen in the mid-1990s. Meanwhile, low prices have finally induced miners to close or reduce an estimated 540,000 mt of annual production, White said. The resulting reduction in available concentrates has helped put a number of larger new smelter projects on hold, with even China’s production expected to fall about 20 percent this year.
Nickel in Surplus This Year. Primary nickel consumption fell about 5 percent last year, one of the worst declines in recent years. Stainless steel output, however, is forecast to rise this year, with full recovery expected in 2003, said Vanessa Davidson of CRU International (London) at the spotlight on nickel/stainless. If this happens, the result would be higher prices for primary products and scrap.
Any such price improvement could be held back, however, by anticipated increases in global nickel production this year. Pricing in the near-term will depend on commodity-fund buying and other speculative interest as well as the actions of Norilsk, the world’s largest nickel producer, which has recently withheld exports, Davidson noted.
The Western World nickel market will likely end this year with a 35,000-mt surplus, though it could show deficits of about 23,000 mt in 2003 and 41,000 mt in 2003, she reported. LME nickel stocks—currently around 20,000 mt—are at lows not seen since the early 1990s, and they could slip from 12 weeks of consumption to less than 10 weeks by next year, she stated.
These supply factors, coupled with sustained increases in demand (including growth in stainless demand of 5 percent annually through at least 2005), could eventually push nickel to $4 a pound or more, Davidson said. Last year, nickel fell below the $3 mark and is expected to average $2.50 to $2.60 this year. If Norilsk continues to limit its shipments, prices could top $3.
On the scrap side, Davidson noted that stainless steel products currently contain 47 to 49 percent scrap. The shortage of stainless scrap in the past 18 months, however, has forced mills to use more primary nickel, she noted. A decline in scrap exports from Eastern Europe has exacerbated this trend and supported scrap prices in the West.
According to Philip Rosenberg of Keywell L.L.C. (Chicago), however, there hasn’t been a shortage of stainless scrap. In fact, he noted, austenitic grades have consistently traded at 92 to 94 percent of LME spot prices for months. Supplies of stainless scrap have also been stable, at least through February of this year, he added.
There could be higher prices in the near term, depending on how robust the economic recovery proves to be this year, Rosenberg said. A better economy, he noted, would help counterbalance the downturn in the aerospace industry, where recovery will take longer.
Mining the Electronic Scrap Lode. Electronic scrap recycling has come into its own and is fast becoming a major industry with huge potential.
Electronic recyclables—also called IT or telecommunications scrap—constitute a broad range of products beyond computers and peripherals. As more products incorporate electronic components, an increasingly complicated array of dissimilar materials are entering the waste stream. These products can be time- and labor-intensive to disassemble and segregate.
Because of the labor-intensive nature of disassembling electronic materials, recyclers need to offset their costs by researching the market and prices for used components as well as charging for taking electronic materials. “If you’re not charging to pick up [electronic scrap], you’re losing money,” said Bruce Blue of Freedom Metals Inc. (Louisville, Ky.) and a speaker at the electronic scrap recycling session.
While traditional scrap recyclers won’t find it easy to enter this market, the opportunities are worth the effort, Blue said, noting that “there will be 150 million personal computers buried by 2005, and only 11 percent of computers that were obsolete in 1998 have been recycled.”
According to Blue, “the rule is that every 14 months the technology changes. Everything’s obsolete, and all of that has to be recycled. The big companies that are trying to recycle [electronic scrap] really don’t want any problems. They’re trying to outsource this stuff. But there are very few firms licensed to handle electronic scrap right now.”
Electronic scrap yields six categories of materials in the recycling process, with ferrous and nonferrous metals being the most prominent, followed by leaded glass, precious metals (including gold, silver, and platinum-group metals), mixed plastics, and a small amount of waste, said Mark Lotzkar of Pacific Metals Ltd. (Vancouver, British Columbia).
He cautioned that there are potential hazards when dealing with electronic materials, including lead in cathode-ray tubes as well as cadmium and PCBs. Transporting electronic scrap can also pose challenges for recyclers if they run afoul of local and federal laws. “If there’s a problem, it can come back to the shipper, and that’s usually me,” Lotzkar said.
For these and other reasons, electronic scrap recycling isn’t for everyone. “You can’t just jump into it. You have to do your homework,” said Chuck Nettleship of DMC (Newfield, N.H.), an electronics recycling firm.
DMC’s recipe for success includes targeting Fortune 500 companies and offering data security to clients—a factor of growing importance since proprietary information can remain on unscrubbed hard-drives.
Nettleship also advocates rapid inventory turnover. “Don’t hang onto material,” he stated. “You have maybe 18 months before a component becomes obsolete. A five-year-old computer is junk, and you’ve got to price it as that. We try to find a market for computer chips or other components, but we only hold onto material for 30 days. We want to turn it over just like in any scrap yard.”
Though there are currently about 600 companies in the electronic recycling business, that’s not enough to meet current demand, Nettleship said. “With the current capacity, it would take 46 years to recycle everything” available to be recycled.
New Lives for Recycled Rubber. In 2001, 48 million scrap tires were used in civil-engineering applications, including highway embankments, retaining walls, roadways, residential foundations, landfill drainage layers, septic drainage fields, and highway edge drains, noted Dana Humphrey of the University of Maine (Orono, Maine). Promising new markets in this niche include use as a vibration-damping layer under rail lines and as an earthquake shock-absorber under bridge foundations.
According to Humphrey, civil engineering “is the fastest-growing market for scrap tires, and it has potential for even further growth.” That’s because scrap tires—when used as tire shreds measuring 3 to 12 inches—offer valuable properties that civil engineers need, including light weight; low earth pressure; good thermal insulation; excellent drainage; and compressibility.
If a civil engineer needs such properties, tire shreds can be the cheapest alternative raw material. Another reason to use tire shreds in civil-engineering projects is that such projects can consume large amounts of scrap rubber, with 1 cubic yard of tire shreds consuming 75 scrap tires, Humphrey said. Offering an example, he noted that even a small project such as a 170-foot-long bridge abutment in Maine consumed 400,000 tires.
Adding to tire shreds’ appeal is the fact that civil-engineering contractors can use conventional equipment to handle the material in their projects, Humphrey said. Also, according to his research, tire shreds have no negative effect on groundwater quality when used above or below the water table. Plus, there are ASTM guidelines that dictate the sizing and requirements for proper use of tire shreds in civil-engineering projects, which helps ensure that no problems result from using the material.
In the end, the main benefit of using tire chips in landfill drainage layers comes down to cost, Gubanc said. Offering one landfill’s costs as an example, he noted that the construction costs to use gravel totaled $378,626 while the costs to use tire chips came to $278,611—a 26-percent savings. Overall, he said, contractors can save about $10,000 an acre using tire chips rather than gravel in the drainage layer.
Aside from its recycling potential, asphalt rubber offers the benefits of long-term performance, resistance to cracking, cost savings, 30-to-50-percent noise reduction, lower maintenance costs per lane mile, and no water puddling because it provides a gap-graded surface, he noted. Plus, asphalt rubber performs so well that engineers can use it in half the thickness of normal asphalt, thus saving on material and installation costs.
Asphalt rubber begins with ground tire rubber that can have only 1 percent wire or fabric contamination, Ashcroft explained. The crumb rubber, which costs about 15 cents a pound, is shipped in 2,000-pound super sacks to the job site, where it is mixed with oil in a ratio of 20 percent rubber to 80 percent oil. This mixture is agitated for about 45 minutes at 350 to 400 degrees F. Eventually, the rubber starts to get absorbed into the oil, while some of the light ends of the oil get absorbed into the rubber. This blending of the two elements creates a thick fluid—the asphalt rubber binder that holds the aggregate pavement material together. Contractors then simply apply the asphalt rubber the same as conventional asphalt, with no equipment modifications necessary, Ashcroft said.
Tire chips work better than #5 stone in septic drainage applications for the following reasons, Roberts noted: Tire chips are about half the cost of stone; they offer 62 percent more void space than stone (this allows greater water volume in the field line, which can extend the life of the trench system); they weigh 64 percent less than #5 stone; they save natural resources by reducing the use of stone; they put scrap tires to beneficial reuse; and they’re easier to use. In addition, he said, tire-chip trenches contain more beneficial organisms than gravel trenches. These organisms eat the biomat that forms at the bottom of the trench, which can improve the trench’s infiltration rate and extend its life.
There can be some challenges to using tire chips, however
ISRI’s 2002 convention enticed more than 2,100 to the Bellagio in Las Vegas, where they learned, networked, and socialized at the scrap industry’s biggest event of the year.
At the event, held March 10-14 in Las Vegas, ReMA did indeed embrace change, including electing new national officers. Ending his term as ReMA chair, Sam Hummelstein of Hummelstein Iron & Metal Inc. (Jonesboro, Ark.) passed the leadership reins to Charles “Cricket” Williams Jr. of Charles Williams & Son Inc. (Richmond, Va.).
Normally, ISRI’s board of directors elects the new chair with a unanimous chorus of “aye” votes. This time, board members ushered in the Cricket era by raising their arms and voting via hand-held “cricket-clickers.”
After the cricket sounds and laughter died down, the board rounded out the slate of national officers by voting in Chair-Elect Joel Denbo of Tennessee Valley Recycling L.L.C. (Decatur, Ala.), Vice Chair Frank Cozzi of Metal Management Inc. (Chicago), and Secretary/Treasurer George Adams of Adams Steel (Anaheim, Calif.).
In his acceptance speech, Williams affirmed his belief that ISRI’s mission is to help its members be more profitable. “We need to be engaged in any activity that increases the profitability of private-sector recyclers,” he said. “Profits are the engine that generates growth, and the more growth we have in the industry, the more growth we’ll have in ISRI.”
Williams acknowledged the hard work of ISRI’s previous national leaders, whom he credited with establishing “a fully informed and engaged board of directors and committee structure that’s poised to do great things for our membership.”
While serving as ReMA chair is no easy job, Williams is used to challenges. In his 30 years of service to ReMA and its predecessor ISIS, he has helped the industry face many difficult issues, including the fight for Superfund liability relief. That’s why Williams’ customary outfit—jeans and a blue blazer—is so appropriate. “Jeans are something you wear when you have hard work to do—and that’s what we have, hard work to do,” he said.
It wasn’t hard work, though, to find ways to enjoy ISRI’s 15th annual convention. The event’s exposition, social events, general sessions, commodity spotlights, and 20-plus workshops truly offered something for everyone. In case you missed some of the action, here’s a look at the highlights.
Keeping Current on Commodities
Onward and Upward for Aluminum. After weathering an “ugly” fourth quarter, the U.S. aluminum market is bouncing back, bolstered by evidence that “the recession is over,” said Lloyd O’Carroll of BB&T Capital Markets (Richmond, Va.) at the spotlight on aluminum.
Leading economic indicators have been improving in recent months, suggesting that the manufacturing sector is finally rebounding, he noted. Unemployment claims are down sharply, consumer confidence appears to be stabilizing, housing starts have held up, and North American auto production has been climbing modestly.
The current economic recovery, however, won’t be as robust as previous recoveries primarily because there’s no pent-up demand, O’Carroll said. The current recovery will likely show GDP growth of 4.5 to 5.5 percent in its first four quarters compared with the historical average of 6.3 percent. The global economic outlook is also looking up, with GDP growth projected to be 2.4 percent this year and 4 percent in 2003.
The improving economic conditions bode well for the U.S. aluminum market, which rebounded from the “ugly” final quarter in 2001 to post increases in orders in January and February, O’Carroll said, though he noted that “things are rising from a very low base.” This year, domestic primary aluminum shipments could grow almost 7 percent to 20.2 million tons, with the transportation sector leading the way with almost 11 percent growth to 7.3 million tons, he reported.
As for prices, aluminum could inch up from its 2001 average of 65.5 cents a pound to 67.2 cents this year, growing further to 76.8 cents a pound in 2003, O’Carroll said.
On the scrap side, the steep decline in manufacturing last year reduced the supply of new scrap, which has led to a scrap shortage that could extend into the summer. “In the short term, get your hands on all the scrap you can,” O’Carroll said. “Several months out, certainly by June or July, the worst should be over and you’ll get back to more normal conditions.”
Scrap prices, meanwhile, have been ratcheting upward in recent months, and the scrap-to-prime ratio has also been rising. “In the next few months,” O’Carroll said, “scrap will move up faster than prime as long as we continue to have some kind of shortage.”
Aluminum’s Automotive Promise. In a talk titled “Riding With Aluminum,” William Bosanquet of Pechiney World Trade USA (Stamford, Conn.) focused on aluminum’s use—and its prospects—in automotive applications.
The transportation sector is currently aluminum’s largest market, accounting for 33 percent of global aluminum consumption, and the light metal will likely continue to gain ground in auto applications, Bosanquet said. By 2005, U.S. vehicles could contain an average of 320 pounds of aluminum, while European and Japanese cars could have an average of 275 pounds, he reported.
Aluminum offers several advantages in the automotive niche compared with competing materials, Bosanquet said. For one, it is a light metal, which enables automakers to lighten their vehicles to improve fuel efficiency and reduce pollution. Also, aluminum parts put less weight on the front axle in front-wheel-drive cars, leading to better car-weight balance and improved braking distances, Bosanquet noted. In addition, cars with aluminum offer better “crumpability”—the ability to absorb energy in accidents. The aluminum pressure-casting process also reportedly offers advantages compared with traditional castings. And last but not least, aluminum is highly recyclable, he pointed out.
Copper—Poised for Growth? Copper demand has grown an average of 3 percent annually for years, yet stocks now exceed 1 million mt and prices dipped below 70 cents a pound earlier this year. The same scenario played itself out in 1999, when many scrap firms took hits or hoarded material awaiting better times.
With the economy on the mend, though, domestic demand is increasing again, overseas consumption is rising in some sectors, and most major analysts see higher prices this year, said experts at the spotlight on copper.
Offering some market perspective, John Gross of J.E. Gross & Associates Inc. (Bayshore, N.Y.) noted that global refined copper consumption—which rose 40 percent from 1990 to 2000—declined 4 percent in 2001, the worst decrease since the 1970s.
In addition, combined copper stocks on the LME and Comex recently reached a record 1.3 million mt, Gross reported. Fortunately, production cutbacks of about 500,000 mt this year could boost prices.
According to Gross, copper is “moving into a period of higher price volatility due to the activity of funds, which have a big impact on the market.” As evidence, he noted that the market experienced two 4-cent price spikes recently despite a lack of any fundamentals to support those moves. He also noted that a market “disconnect” occurred last October when prices turned upward even as stocks continued to rise.
Steven Butler of Asarco Inc. (Phoenix) concurred, asserting that commodity “macrofunds” using computer-driven buy/sell signals are moving the market in ways that may have nothing to do with fundamentals.
Better times are on the way for copper, Gross predicted, noting a more positive global economic outlook, stronger anticipated U.S. growth, and continued expansion in Asia, which accounts for nearly 40 percent of total copper consumption. China continues to import concentrates and other raw materials to feed an appetite that drove its consumption up 25 percent last year, Butler noted. Also, he added, stabilization in the C.I.S. region means that copper consumption there will continue to grow steadily, while U.S. demand is underpinned by high housing-start levels in recent quarters.
In the short term, copper prices may decline again, Gross said, though he noted that growth in global economies and population will push prices higher over time. “The trend is your friend,” he said. “It may not continue going up, but it is going up. It isn’t out of the question to talk about $1 copper again and even new highs within the next two or three years.”
Steel Struggles Back. Prolonged periods of low prices, consolidation, globalization, and increased government regulation have been facts of life as much for the iron and steel industries as for scrap recyclers, said Donald Huizenga of Kurdziel Industries Inc. (Muskegon, Mich.) at the spotlight on ferrous.
“We commiserate with you,” he stated. “You’ve had as much bad news in your industry as we’ve had in the foundry industry.” As proof, he offered these grim statistics: around 30 U.S. steel companies in Chapter 11; 40 foundries closed or in Chapter 11 in the past 12 months; and 400,000 U.S. manufacturing jobs lost in recent years.
Many of the stricken companies cited unfair offshore competition as the basis of their woes. “Globalization is not a passing fad. It’s here to stay,” Huizenga asserted. “They say speed kills, but today, lack of speed kills. We have to deal with change.” He characterized the “speed culture” as a new concept that deals in ambiguity and change in commerce. The events of the past 18 months underscore the need for companies to be able to react to change quickly, he said.
The ferrous spotlight also highlighted Paul Lowrey of Metal Strategies Inc. (West Chester, Pa.), who noted that the 1990s were great for steelmakers, with record demand, unrestricted capital, unrestrained capacity expansion, reasonable pricing (until 1998 at least), and a phenomenal economy. The current decade, in contrast, has brought recession, declining steel demand, capital starvation, shutdowns, and reduced capital expenditures.
Last year alone, U.S. steel demand declined 15 million tons, 11 percent below the previous year’s record level, Lowrey reported. Meanwhile, import penetration into the U.S. market grew from barely 15 percent in 1990 to more than 26 percent in 1998. While imports have since declined, they’re still high—about 20 percent—by historical standards, he said.
Steel prices, meanwhile, “have toppled to historically low levels and are now below the manufacturing costs of many producers,” said Lowrey. Prices for hot-rolled coil reached a low of about $210 a ton late last year. Though they’ve risen slightly since then, they’re still far below the average of $340 a ton in the 20-year period through 2000. “If prices keep falling at the rate they have been, we can assume that steel will be free in 40 years or so,” he said wryly.
Like Huizenga, Lowrey noted the financial troubles in the U.S. steel sector, pointing out that “over half of the integrated steel industry in this country is in bankruptcy.” Overall, “it’s mind-boggling how much overcapacity there is globally in steel,” he said. “There are too many companies—as many as 14 U.S. steelmakers all chasing the same small number of consumers.”
Industry consolidation is long overdue and is now being prompted by dire industry conditions, with the consolidation effort being led primarily by Nucor and U.S. Steel, he said.
Despite this glum situation, Lowrey said that a number of steel policy initiatives could redress the U.S. steel industry crisis. The Bush administration has embarked on a three-part plan that includes import tariffs under the Section 201 case, plus international negotiations to reduce excess capacity and eliminate government subsidies. An emergency steel loan-guarantee program is also a boon to steelmakers and could help offset the legacy costs that are crippling the industry.
In the future, Lowrey sees a gradual recovery driven in part by declining imports, which is starting to create a supply squeeze. Lower imports are occurring at the same time that shuttered domestic capacity is reducing product availability. Also, the U.S. economy is turning upward again. These factors have led to price increases recently ranging from $30 to $60 a ton on most products.
Lead and Zinc—Still on a Losing Streak? Lead continues to defy apparent fundamentals, with prices continuing to be generally lower than demand would suggest. Given lead’s supply-and-demand picture, prices should begin to rise—though it’s difficult to predict when, said George Kleinman of Commodity Resource Corp. (Reno, Nev.).
“I think we all agree that the fundamentals for lead don’t make sense,” he stated. “In the long run, the fundamentals always move the market, but it’s the short term that’s the problem. It’s the unknown that we’re dealing with. As an old trader’s adage goes: ‘The market can remain irrational longer than you can remain solvent.’”
Because price behavior is so difficult to predict, many traders and market analysts put their faith in technical methods, many of which are based on moving averages. A 30-day moving average gives a good indication of the interim movements of the market, said Kleinman, who sees a buy signal if a metal’s price closes above the 30-day average on two consecutive days, and vice versa. A 52-week moving average can be used as well, in which case a buy or sell signal would be two weeks of closings above or below that average.
Recent moving averages and market behavior suggest there may be light at the end of the tunnel for lead. All metals broke above their moving averages in early March and late April, indicating that something positive is happening in the macromarket picture, noted Kleinman. A market recovery, in fact, could be sharper than many have predicted, he said.
“When you have a cheap market for a long time, that market is going to break out at some point. The funds couldn’t push down the price and keep it there unless the fundamentals bear that out,” Kleinman said. By the same token, funds can also work in a seller’s favor by pushing prices up to “irrational levels.”
Another bullish sign for lead is that trading volumes have been exceedingly thin recently, which usually indicates that a market or price cycle is bottoming out. “I think the lead market is looking for an explosive upside movement at some point,” Kleinman said.
- The zinc industry has been dogged for decades by factors that have depressed prices and hindered mining, said Graham White of Considar Metal Marketing Inc. (Toronto).
A second factor hobbling the zinc industry is the relationship between miners and custom smelters. “Custom smelters have very little interest in the zinc price,” White said. “They don’t have much exposure to the price either, except for price escalator and deescalator clauses in contracts. And despite their protestations, the custom smelters have made money.” As evidence of this, White noted that virtually all of the plants to come onstream recently have been custom smelters.
Even so, mining companies deserve the larger share of the blame for oversupply and low prices, he said. “I believe that it’s the responsibility of the miners—not the smelters—to correct supply imbalances in the market. If they cut back output, the smelters wouldn’t have anything to smelt.”
There have been some factors beyond the control of miners and smelters, such as the huge amounts of zinc that flooded the market after the fall of the Soviet Union. By late 1994, LME stocks had risen to an astronomical 1.2 million mt, and it took nearly three years for prices to show any significant recovery.
Commodity funds are another factor beyond the control of miners and smelters. According to White, such funds have the clout to move the price in seeming contradiction to market fundamentals, and they are neither knowledgeable nor rational in their effect on the market. When they sell, they force the price down due to their sheer size in the marketplace, he said.
Last but not least, China’s zinc production has had a bearish effect on the market, White noted. Chinese smelters take in large amounts of concentrates, but the nation is a net exporter of metal units and now accounts for an estimated 6.1 percent of world output.
On the bright side, LME stocks—though still high by historic standards—are less than half the levels seen in the mid-1990s. Meanwhile, low prices have finally induced miners to close or reduce an estimated 540,000 mt of annual production, White said. The resulting reduction in available concentrates has helped put a number of larger new smelter projects on hold, with even China’s production expected to fall about 20 percent this year.
Nickel in Surplus This Year. Primary nickel consumption fell about 5 percent last year, one of the worst declines in recent years. Stainless steel output, however, is forecast to rise this year, with full recovery expected in 2003, said Vanessa Davidson of CRU International (London) at the spotlight on nickel/stainless. If this happens, the result would be higher prices for primary products and scrap.
Any such price improvement could be held back, however, by anticipated increases in global nickel production this year. Pricing in the near-term will depend on commodity-fund buying and other speculative interest as well as the actions of Norilsk, the world’s largest nickel producer, which has recently withheld exports, Davidson noted.
The Western World nickel market will likely end this year with a 35,000-mt surplus, though it could show deficits of about 23,000 mt in 2003 and 41,000 mt in 2003, she reported. LME nickel stocks—currently around 20,000 mt—are at lows not seen since the early 1990s, and they could slip from 12 weeks of consumption to less than 10 weeks by next year, she stated.
These supply factors, coupled with sustained increases in demand (including growth in stainless demand of 5 percent annually through at least 2005), could eventually push nickel to $4 a pound or more, Davidson said. Last year, nickel fell below the $3 mark and is expected to average $2.50 to $2.60 this year. If Norilsk continues to limit its shipments, prices could top $3.
On the scrap side, Davidson noted that stainless steel products currently contain 47 to 49 percent scrap. The shortage of stainless scrap in the past 18 months, however, has forced mills to use more primary nickel, she noted. A decline in scrap exports from Eastern Europe has exacerbated this trend and supported scrap prices in the West.
According to Philip Rosenberg of Keywell L.L.C. (Chicago), however, there hasn’t been a shortage of stainless scrap. In fact, he noted, austenitic grades have consistently traded at 92 to 94 percent of LME spot prices for months. Supplies of stainless scrap have also been stable, at least through February of this year, he added.
There could be higher prices in the near term, depending on how robust the economic recovery proves to be this year, Rosenberg said. A better economy, he noted, would help counterbalance the downturn in the aerospace industry, where recovery will take longer.
Mining the Electronic Scrap Lode. Electronic scrap recycling has come into its own and is fast becoming a major industry with huge potential.
Electronic recyclables—also called IT or telecommunications scrap—constitute a broad range of products beyond computers and peripherals. As more products incorporate electronic components, an increasingly complicated array of dissimilar materials are entering the waste stream. These products can be time- and labor-intensive to disassemble and segregate.
Because of the labor-intensive nature of disassembling electronic materials, recyclers need to offset their costs by researching the market and prices for used components as well as charging for taking electronic materials. “If you’re not charging to pick up [electronic scrap], you’re losing money,” said Bruce Blue of Freedom Metals Inc. (Louisville, Ky.) and a speaker at the electronic scrap recycling session.
While traditional scrap recyclers won’t find it easy to enter this market, the opportunities are worth the effort, Blue said, noting that “there will be 150 million personal computers buried by 2005, and only 11 percent of computers that were obsolete in 1998 have been recycled.”
According to Blue, “the rule is that every 14 months the technology changes. Everything’s obsolete, and all of that has to be recycled. The big companies that are trying to recycle [electronic scrap] really don’t want any problems. They’re trying to outsource this stuff. But there are very few firms licensed to handle electronic scrap right now.”
Electronic scrap yields six categories of materials in the recycling process, with ferrous and nonferrous metals being the most prominent, followed by leaded glass, precious metals (including gold, silver, and platinum-group metals), mixed plastics, and a small amount of waste, said Mark Lotzkar of Pacific Metals Ltd. (Vancouver, British Columbia).
He cautioned that there are potential hazards when dealing with electronic materials, including lead in cathode-ray tubes as well as cadmium and PCBs. Transporting electronic scrap can also pose challenges for recyclers if they run afoul of local and federal laws. “If there’s a problem, it can come back to the shipper, and that’s usually me,” Lotzkar said.
For these and other reasons, electronic scrap recycling isn’t for everyone. “You can’t just jump into it. You have to do your homework,” said Chuck Nettleship of DMC (Newfield, N.H.), an electronics recycling firm.
DMC’s recipe for success includes targeting Fortune 500 companies and offering data security to clients—a factor of growing importance since proprietary information can remain on unscrubbed hard-drives.
Nettleship also advocates rapid inventory turnover. “Don’t hang onto material,” he stated. “You have maybe 18 months before a component becomes obsolete. A five-year-old computer is junk, and you’ve got to price it as that. We try to find a market for computer chips or other components, but we only hold onto material for 30 days. We want to turn it over just like in any scrap yard.”
Though there are currently about 600 companies in the electronic recycling business, that’s not enough to meet current demand, Nettleship said. “With the current capacity, it would take 46 years to recycle everything” available to be recycled.
New Lives for Recycled Rubber. In 2001, 48 million scrap tires were used in civil-engineering applications, including highway embankments, retaining walls, roadways, residential foundations, landfill drainage layers, septic drainage fields, and highway edge drains, noted Dana Humphrey of the University of Maine (Orono, Maine). Promising new markets in this niche include use as a vibration-damping layer under rail lines and as an earthquake shock-absorber under bridge foundations.
According to Humphrey, civil engineering “is the fastest-growing market for scrap tires, and it has potential for even further growth.” That’s because scrap tires—when used as tire shreds measuring 3 to 12 inches—offer valuable properties that civil engineers need, including light weight; low earth pressure; good thermal insulation; excellent drainage; and compressibility.
If a civil engineer needs such properties, tire shreds can be the cheapest alternative raw material. Another reason to use tire shreds in civil-engineering projects is that such projects can consume large amounts of scrap rubber, with 1 cubic yard of tire shreds consuming 75 scrap tires, Humphrey said. Offering an example, he noted that even a small project such as a 170-foot-long bridge abutment in Maine consumed 400,000 tires.
Adding to tire shreds’ appeal is the fact that civil-engineering contractors can use conventional equipment to handle the material in their projects, Humphrey said. Also, according to his research, tire shreds have no negative effect on groundwater quality when used above or below the water table. Plus, there are ASTM guidelines that dictate the sizing and requirements for proper use of tire shreds in civil-engineering projects, which helps ensure that no problems result from using the material.
- Offering a closer look at the use of tire chips in landfills, Dave Gubanc of Central Ohio Contractors Inc. (Reynoldsburg, Ohio) noted that tire chips offer several advantages over gravel in a landfill’s drainage layer—they are half the weight of gravel when compressed to 100 psi; they don’t scale, which can be a problem with gravel; they have a drainage permeability that’s equivalent to or better than gravel; and they don’t require a filter fabric on top of them as does gravel. Using tire chips in landfills can also provide a beneficial use for about 125,000 passenger-tire equivalents per acre, he reported.
In the end, the main benefit of using tire chips in landfill drainage layers comes down to cost, Gubanc said. Offering one landfill’s costs as an example, he noted that the construction costs to use gravel totaled $378,626 while the costs to use tire chips came to $278,611—a 26-percent savings. Overall, he said, contractors can save about $10,000 an acre using tire chips rather than gravel in the drainage layer.
- Compared with conventional asphalt pavement, rubber-modified asphalt is superior from an engineering standpoint and is more cost-effective when applied correctly, said Cliff Ashcroft of FNF Construction Inc. (Fullerton, Calif.).
Aside from its recycling potential, asphalt rubber offers the benefits of long-term performance, resistance to cracking, cost savings, 30-to-50-percent noise reduction, lower maintenance costs per lane mile, and no water puddling because it provides a gap-graded surface, he noted. Plus, asphalt rubber performs so well that engineers can use it in half the thickness of normal asphalt, thus saving on material and installation costs.
Asphalt rubber begins with ground tire rubber that can have only 1 percent wire or fabric contamination, Ashcroft explained. The crumb rubber, which costs about 15 cents a pound, is shipped in 2,000-pound super sacks to the job site, where it is mixed with oil in a ratio of 20 percent rubber to 80 percent oil. This mixture is agitated for about 45 minutes at 350 to 400 degrees F. Eventually, the rubber starts to get absorbed into the oil, while some of the light ends of the oil get absorbed into the rubber. This blending of the two elements creates a thick fluid—the asphalt rubber binder that holds the aggregate pavement material together. Contractors then simply apply the asphalt rubber the same as conventional asphalt, with no equipment modifications necessary, Ashcroft said.
- Scrap tire chips have great promise when used as an aggregate in septic drainage fields, reported Clifton Roberts, a retired official from the South Carolina Department of Health and Environmental Control.
Tire chips work better than #5 stone in septic drainage applications for the following reasons, Roberts noted: Tire chips are about half the cost of stone; they offer 62 percent more void space than stone (this allows greater water volume in the field line, which can extend the life of the trench system); they weigh 64 percent less than #5 stone; they save natural resources by reducing the use of stone; they put scrap tires to beneficial reuse; and they’re easier to use. In addition, he said, tire-chip trenches contain more beneficial organisms than gravel trenches. These organisms eat the biomat that forms at the bottom of the trench, which can improve the trench’s infiltration rate and extend its life.
There can be some challenges to using tire chips, however