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The State of the Scrap Market and Economic Update

Discover the current state of the scrap market and its impact on the global economy. Learn about the jobs and economic benefits provided by the scrap recycling industry.

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The State of the Scrap Market and Economic Update

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  1. State of the Scrap Market and Economic UpdateJoseph C. PickardChief Economist and Director of CommoditiesInstitute of Scrap Recycling Industries, Inc.Virginia Recycling Association Fall Annual Membership MeetingCharlottesville, VAOctober 26, 2015

  2. ISRI: Voice of the Recycling Industry 34 Countries 1,600+ Member companies 7,000+ Recycling facilities worldwide

  3. Institute of Scrap Recycling Industries Paper Ferrous & non-ferrous metals Plastics Textiles Glass Rubber Electronics

  4. The Recycling Industry

  5. Recycling Industry in the US $105 Billion Industry 149,000 472,000 Direct Employees 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

  6. Scrap Has Become a Global Industry Part of the Global Industry 40 $21B 160 Destination countries to which recyclables were sold Total exported (million metric tons) Value of materials exported 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

  7. 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.

  8. 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.

  9. From Bad to Worse: ISRI Index Lowest Since 2009

  10. Ferrous: From Worse to ?

  11. Comparison of 1-Year Scrap Price Performance Sources: Scrap Price Bulletin, AMM, Paper Stock Report, PetroChemWire.

  12. 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-tonneof 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

  13. China Steel Demand Falling Faster Than Production Source: World Steel Association

  14. U.S. Steel Capacity Utilization

  15. 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%.

  16. 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. Reutersreported 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.

  17. YTD Nonferrous Prices

  18. U.S. Copper and Copper Alloy Scrap Exports

  19. Global Recovered Paper Market Developments In the current edition of the BIR’s World Mirror on Recovered Paper, BIR President RanjitBaxi 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.

  20. 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

  21. U.S. Plastic Scrap Exports Through August 2015 Annual and YTD U.S. Plastic Scrap Exports by Polymer (metric tons) 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.

  22. U.S. Industrial Production Uneven Among Sectors

  23. 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.

  24. Hiring Slows in Recent Months

  25. 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.

  26. Unemployment Rate Steady at 5.1%

  27. U.S. Economic Growth: Real GDP +3.9% in Q2

  28. 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.

  29. Chinese Manufacturing Slowing, and Chinese Commodity Demand is Falling Faster Output Caixin Flash China General Manufacturing PMI

  30. 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.”

  31. Commodities Still Down Sharply This Year Returns on the Bloomberg Commodity Index are down 16% YTD and 25% over the last year.

  32. IMF Commodity Outlook

  33. 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.

  34. 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

  35. World Bank Forecasts

  36. Thank You Joseph Pickard, ISRI 1615 L St., NW Washington DC 20008 I (202) 662-8542 joepickard@isri.org I www.isri.org

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