Transcript Institute of Scrap Recycling Industries

State of the Scrap Market and Economic Update
Joseph C. Pickard
Chief Economist and Director of Commodities
Institute of Scrap Recycling Industries, Inc.
Virginia Recycling Association
Fall Annual Membership Meeting
Charlottesville, VA
October 26, 2015
ISRI: Voice of the Recycling Industry
1,600+
Member
companies
7,000+
Recycling facilities
worldwide
34
Countries
2
Institute of Scrap Recycling Industries
Ferrous &
non-ferrous
metals
Glass
Rubber
Paper
Textiles
Plastics
Electronics
3
The Recycling Industry
4
Recycling Industry in the US
$105 Billion Industry
149,000
Direct Employees
472,000
Direct + Indirect
+135,000,000
Tons processed annually
75 million tons ferrous
5.4 million tons aluminum
2 million tons copper
46 million tons paper
5
Scrap Has Become a Global Industry
Part of the Global Industry
40
$21B
160
Total exported
(million metric tons)
Value of materials
exported
Destination countries to which
recyclables were sold
With between 30 & 40% of all scrap processed in US destined for export each year, the
health of the US recycling industry is directly tied to the health of the global economy
6
Scrap Recycling Jobs Study
• In 2015, the Institute of Scrap Recycling Industries (ISRI), Inc. retained the independent
economic consulting firm of John Dunham and Associates to perform an economic impact
analysis to document the size and scope of the scrap recycling industry in the United States
and document its significant contribution to the U.S. economy, in terms of employment, tax
generation and overall economic benefit.
• The study found that the people and firms that purchase, process and broker old materials to
be manufactured into new products in America provide 471,587 adults with good jobs in the
United States and generate more than $105.81 billion annually in economic activity.
• The study also found that the scrap recycling industry generates about $4.39 billion in state
and local revenues annually and another $6.76 billion in federal taxes are paid annually by
the industry and its employees.
Virginia Scrap Recycling Industry
• In the state of Virginia, the Dunham Study
found that 2,970 jobs are being supported
by the manufacturing and brokerage
operations of the scrap recycling industry
in Virginia.
• In addition to this, 8,903 jobs are
indirectly supported by the scrap
recycling industry through suppliers and
the indirect impact of the industry’s
expenditures.
• All of this activity generates $1.99 billion
in economic benefits in Virginia.
• All told, the VA scrap recycling industry
generates $106.9 million in tax revenues
for the federal government and $54.02
million in state and local revenues.
From Bad to Worse: ISRI Index Lowest Since 2009
Ferrous: From Worse to ?
Comparison of 1-Year Scrap Price Performance
Oct-14
Oct-15 (p)
% CHG
342.5
152.5
-55%
275.57
210
-24%
72.9
51
-30%
103.33
100.83
-2%
53-54
25-28
-50%
Ferrous ($/gt)
Composite No. 1 HMS
Nonferrous (cents/lb.)
Refiners No. 2 copper
Old Cast and Sheet Avg.
Recovered Paper ($/st)
OCC (11)
Plastic (cents/lb.)
HDPE Bottles Natural Bales
from Curbside, (FOB U.S.
East Coast)
Sources: Scrap Price Bulletin, AMM, Paper Stock Report, PetroChemWire.
Iron Ore
•
“TSI’s daily 62% Fe fines benchmark price was largely stable in September, as spot prices
continued to hover around the US$55/dmt CFR Tianjin port mark. The index started the
month at US$55.70/dmt and finished September at US$54.40/dmt CFR Tianjin port.”
•
“…exports out of the Western Australia iron ore hub of Port Hedland soared to yet another
record in September, rising to 39.4m tonnes from 39.2m tonnes the month prior (also a
record). The volume going to China slipped marginally, but was more or less unchanged at
33.8m tonnes (vs. 33.9m tonnes in August).”
•
“Amid the increasing supply, the pressure remains for miners to stay on the right side of the
marginal cost curve. Brazilian miner Vale said it would cut its production cost per-tonne of
iron ore to below US$13/t by 2018, which would be US$3/t lower than it is currently.
Meanwhile, analysts at the investment bank UBS said they believed BHP Billiton may have
inched ahead of its rival Rio Tinto in the battle for the lowest cost base, though only by
cents.”
Source: The Steel Index
China Steel Demand Falling Faster Than Production
Source: World Steel Association
U.S. Steel Capacity Utilization
YTD U.S. Ferrous Scrap Exports
As for ferrous scrap
exports (excluding
stainless and alloy steel
scrap), the Census
Bureau reports exports
during Jan-Aug 2015
decreased 18 percent by
volume as compared to
last year to less than 8.1
million metric tons as
demand declined sharply
from Taiwan, Korea,
Canada, and China,
more than offsetting
gains to Mexico, India,
and, to a lesser extent,
Turkey and Vietnam. In
dollar terms, ferrous
scrap exports fell 35%.
Nonferrous Production Cutbacks
Unlike the ferrous market, nonferrous metal miners have recently demonstrated a
willingness to cut back on mine production in light of the deteriorating price
environment. Reuters reported that “weak commodities prices prompted heavyweight
miner and trader Glencore to cut 500,000 tonnes of zinc production, or 4 percent of
global supply… a move that sent zinc prices rallying about 10 percent… Glencore's
move follows recent cuts in copper output and could signal that metal prices are
nearing the bottom of the cycle… Glencore's 400,000 tonnes of cuts in Africa
comprise SX-EW capacity in the DRC and conventional smelter capacity in Zambia.
Freeport's 136,000-tonne annual cuts at its U.S. mines and its El Abra mine in Chile
are all in the form of leaching capacity. And the same with Asarco's 30,000 tonnes of
cuts in the U.S. and for the 30,000 tonnes of cuts just announced at the Collahuasi
mine in Chile.”
According to the International Copper Study Group’s latest forecasts, the global
refined copper market should is now expected to be “essentially balanced” in 2015, as
compared to the prior forecast of a 360,000 metric ton surplus, while in 2016 the
Study Group now expects a global copper production deficit of 127,000 metric tons.
YTD Nonferrous Prices
17
U.S. Copper and Copper Alloy Scrap Exports
Global Recovered Paper Market Developments
In the current edition of the BIR’s World Mirror on Recovered Paper, BIR President Ranjit Baxi
of J&H Sales International Ltd. writes that despite on-going concerns about China and
developing economies, bright spots in the third quarter included improving demand in the U.S.
and Europe, while “…the falling price of oil continued to help keep sea freights low, with
shipping lines able to maintain rates at competitive levels over the quarter despite decreasing
trade volumes and container shortages at some European ports. Meanwhile, a strong US
dollar and a weak Euro helped to keep fibre export prices from Europe to China at favourable
levels. Prices for OCC continued to weaken during the third quarter, having started at US$
180+ per tonne but then declining during the quarter to US$ 165+. Similarly, prices for mixed
paper started at US$ 140+ per tonne but were reduced to US$ 130+ by the end of the quarter.
Demand from other Asian markets – namely India, Indonesia and Vietnam - continued at levels
similar to those of the second quarter but prices were slightly lower.”
As for recovered paper and fiber pricing in the U.S., PPI Pulp & Paper week reports steady
domestic prices for mixed paper this month, although domestic prices for SOP are reportedly
down around $5-10 per ton, with SOP to China down $7-8/ton, while OCC export prices to
China are reportedly down $5 per ton this month in most export regions including New York
($144-$147/ton) and Los Angeles ($154-157/ton). More on Chinese demand and U.S. RP
exports in next week’s Friday Report.
U.S. Recovered Paper and Fiber Exports
Annual and YTD U.S. Recovered Paper and Fiber
Exports by Major Grade (short tons)
Sources: U.S. Census Bureau/U.S. International Trade Commission
U.S. Plastic Scrap Exports Through August 2015
Annual and YTD U.S. Plastic Scrap Exports by Polymer
(metric tons)
2012
2013
2014
2014 YTD
2015 YTD
% CHG
POLYMERS OF ETHYLENE
593,578
626,087
763,291
491,819
485,192
-1.3%
POLYMERS OF STYRENE
43,684
33,761
28,248
19,399
16,323
-15.9%
POLYMERS OF VINYL
CHLORIDE
199,284
227,343
252,008
173,537
136,362
-21.4%
PET PLASTICS
310,947
281,188
368,718
250,323
208,044
-16.9%
OTHER PLASTICS
863,602
740,957
759,425
503,193
584,235
16.1%
2,011,095
1,909,336
2,171,690
1,438,271
1,430,156
-0.6%
TOTAL
Sources: U.S. Census Bureau/U.S. International Trade Commission
By volume, total U.S. plastic scrap exports were down just 0.6% year-on-year to 1.43 million metric
tons through August, although with the drop-off in plastic scrap pricing this year, exports in dollar
terms were down more than 8% to $574 million. While export sales declined to mainland China (21%), India (-9%), Indonesia (-41%), and South Korea (-33%), those losses were partially offset by
gains to Hong Kong (+17%), Canada (+4%) and Vietnam (+22%), among other markets.
U.S. Industrial Production Uneven Among Sectors
Scrap Industry Health Still Connected to U.S. Manufacturing Sector
The latest jobs report was
disappointing for a number of reasons,
including the second consecutive
monthly decrease in manufacturing
jobs in the U.S., which declined by
9,000 in September, following a loss of
18,000 manufacturing jobs in August.
The decrease in manufacturing jobs
comes in spite of excellent automotive
sales numbers and improving
construction sector indicators. But the
longer-term trend on manufacturing
jobs in the U.S., which is closely
related to the health of the scrap
industry, is not great. In 1979,
manufacturers employed about 19.5
million people. Today? About 12.3
million. Mfg. jobs are up by not quite a
million jobs from the depths following
the great recession but are still off by
some 7.2 million jobs since the late
70’s, with unmistakable results not just
for the national economy but for local
communities as well.
Hiring Slows in Recent Months
Construction Spending on the Upswing
The U.S. Census reported construction spending during August
2015 was estimated at a seasonally adjusted annual rate of
$1,086.2 billion, 0.7 percent above the revised July estimate of
$1,079.1 billion. The August figure is 13.7 percent above the
August 2014 estimate of $955.0 billion. During the first 8 months
of this year, construction spending amounted to $683.4 billion, 9.8
percent above the $622.4 billion for the same period in 2014.
Category
AUG
JUL
JUN
MAY
APR
Total Construction
0.7%
0.4%
0.6%
2.3%
3.8%
Private
0.7%
1.1%
-0.4%
2.5%
3.8%
Residential
1.3%
0.6%
0.8%
1.7%
2.6%
Nonresidential
0.2%
1.6%
-1.5%
3.3%
4.9%
Public
0.5%
-1.3%
3.0%
1.6%
3.9%
Unemployment Rate Steady at 5.1%
U.S. Economic Growth: Real GDP +3.9% in Q2
Dollar Strength Hurting Exports (Boosting Imports)
While the Federal Reserve ended its
quantitative easing program in October 2014,
stimulus measures overseas – including the
Bank of Japan’s annual target asset
purchases worth 80 trillion Japanese yen
and the European Central Bank’s 1.1 trillion
Euro stimulus program, continue to weigh on
foreign currencies. As compared to 2012
when the dollar was buying less than 80
Japanese yen, the dollar has been trading up
around 120-125 yen for most of this year.
Similarly, the dollar was briefly trading near
$1.05 against the Euro in the first quarter of
2015, versus an exchange rate that
approached $1.40 as recently as May last
year. The appreciation of the dollar not only
makes our dollar-denominated scrap exports
less competitive as compared to other scrap
exporting countries, it also makes imports of
both scrap and other raw materials more
attractively priced.
Chinese Manufacturing Slowing, and Chinese
Commodity Demand is Falling Faster Output
Caixin Flash China General Manufacturing PMI
Chinese Deflationary Pressure
China’s National Bureau
of Statistics reported that
Chinese producer prices
fell 5.9 percent in
August, its 42nd
consecutive month of
decline and the biggest
drop since the depths of
the global financial crisis
in late 2009. The
sustained decline in
producer prices reflects
the downturn in China's
housing market, which
had led to excess supply
of the materials used in
the housing boom.”
Commodities Still Down Sharply This Year
Returns on the
Bloomberg
Commodity
Index are down
16% YTD and
25% over the
last year.
IMF Commodity Outlook
IMF World Economic Outlook
“Global growth for 2015 is projected at 3.1 percent, 0.3 percentage point
lower than in 2014, and 0.2 percentage point below the forecasts in the
July 2015 World Economic Outlook (WEO) Update. Prospects across the
main countries and regions remain uneven. Relative to last year, the
recovery in advanced economies is expected to pick up slightly, while
activity in emerging market and developing economies is projected to slow
for the fifth year in a row, primarily reflecting weaker prospects for some
large emerging market economies and oil-exporting countries. In an
environment of declining commodity prices, reduced capital flows to
emerging markets and pressure on their currencies, and increasing
financial market volatility, downside risks to the outlook have risen,
particularly for emerging market and developing economies.”
Source: IMF World Economic Outlook, October 2015.
Keys Going Forward
•
Still hard to see short-term bullish scenario for commodities and ferrous
in particular
•
Fed indecisiveness adding to market volatility and concerns about
developing economy prospects
•
Need for cutbacks in excess global primary commodity capacity and
production
•
Industry consolidation/rationalization
•
Commodity prices beyond our control: focus on operational efficiency
and quality, new market development and diversification
•
Cyclical, evolving industry
•
Longer term positive trends
•
ISRI
World Bank Forecasts
Thank You
Joseph Pickard, ISRI
1615 L St., NW
Washington DC 20008 I (202) 662-8542
[email protected] I www.isri.org