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Economy at forefront of discussions at ISRI conference

Apr 30, 2013 | 08:00 PM | AMM staff

Tags  Institute of Scrap Recycling Industries, Timothy Kneen, UBS Financial Services, ferrous scrap, Sachin Shivaram, Severstal North America Inc., DRI, David W. Chiao Uni-All Group Ltd.

A North American economy that has had difficulty gaining traction was a major topic of conversation at the Institute of Scrap Recycling Industries’ annual convention and exposition in Orlando, Fla., in April.

Timothy Kneen, senior vice president of wealth management and senior institutional consultant at UBS Financial Services, described the global economy as a tricycle during a “Spotlight on the Economy” session. “The front wheel ... the engine that is driving the world right now, is the United States. It’s the engine that will pull everything along behind it. We would argue the back two wheels of the tricycle right now are China and Europe, and they’re looking awfully wobbly to us.”

Scrap iron and steel dealers, brokers and buyers, who seemed to be in a decided minority among large contingents of nonferrous, paper, rubber and electronic waste attendees, weren’t overly optimistic about their sector through the summer, with buyers reporting weak order books through July. “It’s going to be a long, hot summer,” one buyer said.

Brokers and dealers are banking on the supply side to prop up the market. “The only thing that could keep this market from outright collapsing,” one East Coast dealer said, “is the simple fact that there is no scrap.”

Another East Coast dealer sitting in on a ferrous scrap session echoed those sentiments. “The market could go down again in May,” he said, “but it could turn around real fast because of the supply situation. If there’s any uptick in demand in this market, this thing could get touchy real quick.”

Some conference attendees were looking for new business opportunities. A Canadian broker emerging from a seminar on electronic waste said his company wanted to learn all it could about recycling’s newest sector, since dealers and peddlers increasingly have sought a place to sell electronic waste, along with ferrous and nonferrous scrap. “If we don’t take it, they’ll find somebody who will,” he said.

Sachin Shivaram, general manager of metallics purchasing at Severstal North America Inc., Dearborn, Mich., raised some eyebrows when he told the ferrous scrap session that the Russian-owned steelmaker plans to abandon the traditional buying pattern of establishing a market at the beginning of each month. “We buy scrap 30 days a month,” said Shivaram, who is responsible for buying 3.5 million tons of scrap and iron annually for Severstal NA’s mills in Dearborn, Mich., and Columbus, Miss. “It is a vibrant, dynamic market beyond what is going on at the beginning of the month. ... There is value in having more data points. A two-day buy period is not enough time to make good decisions. It is archaic that our market is that way. We want to talk to you at mid-month, and that’s not because we are desperate for scrap.”

Shivaram also questioned whether the boom in direct-reduced iron (DRI) production will lead to overcapacity. “We’re somewhat skeptical of DRI,” he said. “We see it as a great opportunity to buy more prime (scrap).”

For those in the ferrous scrap business, one of the hottest topic at the ISRI convention was the export market, particularly China. The Chinese became a leading destination for U.S. ferrous scrap in the earlier part of the 21st Century before sharply cutting back purchases last year.

In a session on emerging markets, David W. Chiao, vice president of Uni-All Group Ltd., Atlanta, told a capacity crowd that it has been 15 years since the 1998 ISRI Convention in Orlando in which China was first identified as an emerging market for U.S. ferrous, nonferrous, paper and plastic scrap. “Now, I believe everyone in this room is directly or indirectly supplying China scrap metals, waste paper or scrap plastics,” he said.

Chiao broke his analysis of the past 15 years in China into three five-year segments:

¥ From 1998 to 2003, China was beginning to open for business, he said. The government opened scrap-processing zones to facilitate the import of scrap, and the country’s growth rate was 6 to 8 percent annually.

¥ The 2004-08 period coincided with the severe acute respiratory syndrome (SARS) epidemic, the Beijing Olympics and the economy “running a marathon at a 100-meter-dash speed.” Real estate prices doubled and tripled and doubled and tripled again, and every piece of scrap shipped to China was profitable; even the rocks contained in scrap steel had a value, since they could be used on highway projects.

¥ The latest period, 2009 to 2013, was ushered in by the worldwide economic collapse. China began to contend with slower growth, growing environmental problems and the increasing dichotomy between rural and urban China.

Chiao expects environmental issues to be a continuing government priority, which is leading to much more stringent inspection of imports of ferrous and nonferrous scrap cargoes, a growing concern for U.S. exporters. He also expects labor costs to continue to increase in China to keep up with the cost of living, and noted that the country’s social burden is advancing, with many young workers now helping to subsidize the living expenses of both parents and grandparents. “The slower speed of growth is inevitable” in China, Chiao said.

Interest in Turkey as an export destination was almost as keen at the ISRI convention as interest in China.

Turkey has emerged as the No. 1 buyer of U.S. ferrous scrap exports during the past five years, followed closely by China. Turkey buys about 21.5 million tonnes of ferrous scrap annually, or slightly more than 20 percent of global exports, sourcing around 27 percent of its ferrous scrap needs from the United States.

“There is a whole infrastructure out there that has to support the export market,” one East Coast broker said.

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