A Rebuilding Project

Demolition contractors and C&D materials recyclers were affected in numerous ways by the sudden changes in the scrap metal markets that took place in the third and fourth quarters of 2008.

During much of 2009, the scheduling of demolition projects, the flow of materials into mixed C&D plants and, of course, the prices paid for scrap metal generated by both types of businesses were affected by the turmoil of late 2008.

For the most part, the trends in the metals market were tied to a recovery or slow rebuilding of the metals industry, as the global economy regained its health in fits and starts throughout the year.

IRON WILL
The Institute of Scrap Recycling Industries Inc. (ISRI) brings metals recyclers together each fall at its Commodities Roundtable Forum, which took place in 2009 in mid-September in downtown Chicago.

Speaking to attendees of the Ferrous Roundtable at that event, Patrick McCormick of World Steel Exchange Marketing, Englewood Cliffs, N.J., remarked that ferrous scrap exports from the United States had returned to the large volume levels they reached in the first half of 2008, when ferrous scrap pricing reached historic highs.

McCormick and other panelists pointed to several market fundamentals that have allowed iron and steel scrap pricing to remain strong even while steel mills in North America and Western Europe operate well below their productive capacities.

The economy in the United States is not necessarily one of the factors causing optimism. John Packard of the Steel Market Update news service remarked that his own surveying of manufacturers and steel service centers shows almost no expectation of a "V-shaped" or fast economic recovery.

He told attendees that just 1 percent of respondents to his survey are predicting a V-shaped recovery and only 27 percent a U-shaped pattern, which implies steady recovery. Some 37 percent foresee a jagged W-shaped recovery while another 35 percent see an L-shape that won’t involve a recovery anytime soon.

Packard says he sees a U-shape that "seems to be bottoming out right now."

Regarding the domestic economy, Mark Millet of the OmniSource division of Steel Dynamics Inc. (SDI) commented on his disappointment as to how little of the federal government’s $700 billion stimulus package was directed toward infrastructure projects. This contrasts sharply with China’s emphasis on roads, bridges and power grid projects.

Sources of optimism remain overseas, in the form of expanding electric arc furnace (EAF) capacity throughout the world, with the notable exception of China. But McCormick noted that even though China has largely built basic oxygen furnace (BOF) mills, when scrap prices dropped sharply last year, producers in China "saw a great buying opportunity" and began buying more scrap as feedstock for BOF mills.

Panelist John Kopfle of Midrex Technologies, a maker of alternative iron production systems, sees more EAF growth outside of China, and perhaps within China if carbon emissions become a consideration there. "DRI (directed reduced iron) and HBI (hot briquetted iron) are in a good position going forward," he remarked.

Millet of SDI says his company foresees continuing pressure on scrap supplies, which is why it has invested in alternative iron technology at its Indiana mills as well as in the Mesabi Range of Minnesota. The company’s Iron Dynamics technology can produce EAF feedstock that costs about $320 per tons, says Millett, a price that is at the upper end of ferrous scrap’s historic range but well below the high prices reached in early 2008.

COPPER STAYS WIRED
Panelists on the Copper Roundtable at the 2009 ISRI Commodities Roundtable Forum painted a landscape for copper that was similar to the one for iron and steel.

U.S. manufacturers, including those who melt or use copper, continue to operate in a sluggish economy. Much of the rest of the world, however, is engaged in activity that continues to keep demand for red metals at historically healthy levels.

The Copper Roundtable panel’s industry analyst, Catherine Virga of CPM Group, New York, pointed to several reasons why she has concluded that the demand for and price of copper will move higher in the next two years.

Her leading premise is that demand for copper can recover more swiftly than can copper supplies, particularly after several new copper mining development projects were put on hold following the 2008 collapse in the per-pound price of copper.

With an uptick in demand globally throughout 2009, the physical market has remained tight, says Virga, with LME inventories "at less than one week of [total global] demand."

She also remarked that even if China’s demand for red metal begins to wane, and as pricing falls in response to that, "that [price] correction is expected to stimulate demand in other parts of the world."

AN ALUMINUM BULL
Global demand for aluminum is rising again, and one forecaster is convinced that means the LME price for aluminum will also rise.

Speaking to attendees of the Aluminum Roundtable at the 2009 ISRI Commodities Roundtable Forum, analyst Javier Vasquez of Harbor Intelligence, Laredo, Texas, offered a series of charts to bolster his forecast that the fundamentals point to an aluminum price rise for the next several months.

Although it may not feel like a bull market in the United States, construction projects and urbanization in other parts of the world are providing the demand boost for commodities such as aluminum, says Vasquez.

Addressing those wondering whether aluminum’s recent price gains are based on legitimate market fundamentals, Vasquez said that "global average daily demand is up 34 percent in August of 2009 versus January of 2009."

Vazquez says that, with the "sharp exception" of December 2008, global demand for aluminum has continued to increase "no matter the economic cycle." From 2002 to 2008, the average annual growth in aluminum demand was 7.3 percent, he noted. C&DR