The strained U.S.-China trade relationship and other global economic challenges have only accelerated the restructuring of the recycling industry that was already underway. In the private sector, industry consolidation has been a recurring theme in recent years as larger recycling companies compete to obtain profitable operations and ex- pand their footprints. Certain- ly China’s scrap import restrictions on scrap had a major impact on aluminum, copper, and recycled commodity markets thus impacting auto recyclers. In addition, the tariffs imposed by the United States and China continue to reshape global supply chains with significant implications for all scrap metal recyclers. Ferrous scrap prices advanced over the course of 2018 with No. 1 heavy melt averaging $333.50 per ton. U.S. ferrous scrap exports were up about 20 per- cent in 2018 over 2017 thanks to improved overseas demand for obsolete ferrous scrap. On the domes- tic front, new durable goods orders hovered around $243 billion per month and were on a similar track with ferrous scrap prices. While purchasing has re- mained consistent, capacity utilization and personal expenditures on durable goods steadily increased over this time. Per number of units, automobile sales in the U.S. were similar between 2017 and 2018, but the composition of those sales shifted 5 percent from passenger vehicles to light trucks or larger vehicles. Political support for infrastructure investment and domestic steel production puts a positive lean on the outlook for ferrous scrap markets in 2019. The rati- fication of the United States Mexico Canada Agree- ment would certainly help stabilize traditional trade relationships. Global steel production may have an- other issue to contend with as the implementation of the Paris Climate Agreement will be underway. However, the U.S. appears to have already met the environmental stewardship goals of the agreement they are no longer a party to, which puts the onus of adjustment on many of the other steel producing countries around the world. This is likely to mean a more rapid shift toward EAF capacity. However, the World Steel Association’s calculation of the energy use in the steel industry has shown that efficiencies in production may have hit a marginal cost barrier over the last 5 years.
This time last year, Macquarie Research was fore- casting an average aluminum price of $2,038 per metric ton for 2018. In fact, the LME official alumi- num cash price averaged nearly $2,110 per ton last year. But aluminum prices at the LME also finished
AUTOMOTIVE RECYCLING • January-February 2019
Certainly China’s scrap import restrictions on scrap had a major impact on aluminum, copper, and recycled commodity markets thus impacting auto recyclers.
the year 18 percent lower as compared to the end of 2017. The year-on-year decline in alu- minum prices came amid de- layed U.S. sanctions against the Russian aluminum giant U.C. Rusal and a relatively modest one percent increase in Chinese primary aluminum production during the first 11 months of 2018, according to International Aluminum Institute estimates.
For U.S. aluminum scrap recyclers, transportation bottlenecks and difficult physical market fundamen- tals continue to pose challenges. The outlook for 2019 will continue to be shaped in large part by trade policy and domestic investment in aluminum produc- tion. The U.S. Geological Survey reports that “Centu- ry Aluminum Co. announced that it would expand the capacity of the billet casthouse at its Sebree, KY, smelter. The project would add 90,000 metric tons per year (t/yr) of billet capacity. A separate project at the Sebree smelter would add 20,000 t/yr of sec- ondary aluminum smelting capacity.” Meanwhile, the U.S. International Trade Commission determined that unfairly-traded imports of common alloy alumi- num sheet from China have materially injured U.S. producers, the Aluminum Association reports. Mac- quarie Research now projects that the average alumi- num price will increase from $2,078 per ton in 2019 to $2,128 per ton in 2020. Broadly, the economy and manufacturing sector are still signaling growth in the near term, which tends to go hand-in-hand with healthy demand for scrap metal. However, the outlook for scrap metal has become more complicated this year given the long list of economic, trade, political, and financial mar- ket risk factors. In addition, for auto recyclers, like with other products, the stream of end of life vehicles continues to change rapidly as new materials, alloys, and electronics are introduced in cars. Recyclers are extremely innovative in responding to changing mar- ket dynamics, but these changes pose challenges both in terms of processing and finding end markets for the new materials. This will continue to be a factor in 2019 and beyond.
Joe Pickard, Chief Economist & Director of Commodities, ISRI Pickard serves as the Chief Economist and Director of Commodities at ISRI where he conducts research and analysis on commodity and scrap market developments and the key economic role that recycling plays both in
the U.S. and abroad. He regularly provides information and insights on the primary and recycled iron and steel, nonferrous metal, paper, plastics and electronics markets to ISRI member companies as well as to industry associations, policymakers, the press, and the general public.
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