Scrap Metal

Last June, in an aluminum market analysis during HARBOR Aluminum Outlook conference in Chicago, Lloyd O’Carroll gave attendees an overview of the aluminum beer can market. He showed a slide containing a graph that depicted US beer consumption.

“I try to do my part in this, and I’m going to keep trying,” said O’Carroll, who is senior vice president and metals equity analyst for Richmond, Va.-based Davenport & Company. “The rest of you — do your part.”

What O’Carroll was promoting, of course, was not indiscriminate alcoholic consumption (necessarily), but increased domestic aluminum sheet usage in the beverage industry. The 2008 recession took its toll on beer consumption, which showed a 2 percent decrease in total domestic consumption from 2008 to 2009, the biggest drop in over a decade.

Fortunately, O’Carroll was happy to report, more beer is going into cans than into any other containers.

And, according to a recent Bloomberg article, a bit more of that beer will soon be under the Molson Coors name.

It just won’t be sold in the US market.

The Denver-based beer behemoth recently bought StarBev LP, maker of Staropramen (Ed. Note: not an entirely bad Czech-style pilsner) and European distributor of Stella Artois, Beck’s and Leffe, for €2.65 billion ($3.5 billion).

The purchase will not really help domestic beer consumption, as the move will push Molson Coors’ business into Central/Eastern European markets — namely, the Czech Republic, Hungary, Romania and Bulgaria — which are dominated by Carlsberg, Heineken and SABMiller. (See graph below).

Source: Financial Times

The move shows that the US beer market is still rather anemic.

Bloomberg cites Beverage Information Group’s findings that “U.S. beer volumes have fallen for three straight years, including a 1.5 percent decline in 2011.” The big brewers’ pesky counterpart, the craft brewing industry, is growing fast, but their sales share still only represents 5.7 percent by volume and 9.1 percent by dollars in 2011, according to the Brewers Association.

However, Trevor Stirling, an analyst at another sell-side research firm, Sanford C. Bernstein, was quoted as saying that the craft and import sectors account for 18 percent of US market share and “are growing fast.”

Nonetheless, more than 30 percent of the world’s beer ends up in cans, according to the Can Manufacturers Association, and as the No. 2 brewer in the US (with their US arm, MillerCoors, holding nearly a 30 percent market share, according to Beer Marketers Insights), Molson Coors is responsible for a sizable share of aluminum recycling and can shipments — heck, Coors is even responsible for the first-ever aluminum can.

As long as emerging beer markets continue to grow, and the North American beer markets don’t completely tank, global demand for aluminum sheet and recycled scrap should remain steady to rising in the years to come.

Molson Coors had better take steps to up their market share now, though — analysts at Societe Generale speculate that the beer industry’s 800-pound gorilla, AB InBev, may bid for closest competitor SABMiller before too long…

So how will Britain go about ending the North Sea oil industry, as we got into in Part One yesterday?

Suggestions that the life of production platforms could be extended by the widespread conversion to alternative uses, such as bases for wind turbine generators, are probably not economically viable.

Platforms cost a fortune to service and maintain while the revenue from turbines is relatively small. A few platforms in shallower waters could provide electrical connection bases for offshore wind farms; the platform would carry the electrical collection and transmission equipment gathering power from individual turbines and managing the transmission to land through existing power cable connections.

Although the technology is far from proved, that has not stopped some from suggesting wave power devices could be anchored to defunct oil or gas production platforms. Where environmental conditions are more favorable, specifically in warmer climes, a number of alternative options may exist for the millions of tons of steel anchored above or standing on our sea beds.

report last year stated the Gulf of Mexico continental shelf will lose a third of its offshore platforms in the next five years and most of the remaining platforms will be removed in the next 15 to 20 years, depriving the area of an entirely unintended (but nevertheless rich) coral ecosystem. Perversely, it seems rigs are removed because recognizing their environmental role as providing habitat would incur oil companies significant costs in compliance to Federal laws, yet the loss of rig structures in the next five years is estimated to potentially destroy 1,875 acres of coral reef habitat and 7 billion invertebrates.

It is estimated that 49 species of federally managed fish and 25 species of protected invertebrates utilize, to varying degrees, the platform substrate for feeding, spawning, mating, and growing to maturity.

In locations such as the Gulf, clearly many more options exist for alternative uses for some if not all of the existing platforms, but in the harsher conditions of the North Sea, most platforms will ultimately be destined for the scrap heap.

The manufacturing world got some news late last week that is neither entirely uplifting nor completely dispiriting. The good news is that industrial production and capacity utilization did not decrease last month. The upward trend for US manufacturing continues, and we hope that it’s a sustainable one.

Growth continues, but not at eyebrow-lifting rates. According to the latest Fed figures, capacity utilization grew by 0.1 percent, from 77.3 to 77.4 percent. Industrial production was flat from January to February, but is likely to show an increase upon later revision — production figures initially showed no change for January, subsequently getting revised to show an increase of 0.4 percent.

The bottom line seems to point to one dominant issue (and two sub-factors) that challenges manufacturers and other sourcing organizations: uncertainty, brought on by 1) commodity/raw material price volatility; and by 2) the government policy landscape.

Commodity Price Volatility

Following the latest ISM PMI figure, which also decreased month-on-month in February but remained in positive growth territory, companies voiced concern over price volatility.

“Business is holding steady. Concern over commodity prices ongoing,” a chemical products manufacturer responded to the ISM survey. Another respondent, working in the machinery sector, said “”Still somewhat cautious about recovery. Expecting a good year, but not seeing orders yet.”

All metal categories were reported to be up in price for buyers, including aluminum products, copper products, rolled steel, scrap and titanium dioxide. The only commodity down in price was natural gas (which seems to be a trend that US and EU manufacturers are taking advantage of for the long term — see GM’s plans for natural gas vehicles, and a report claiming that 1 in 3 large vehicles in Europe will run on LNG by 2035.)

Manufacturing-Friendly Government Policy

Economist Chad Moutray, writing in the National Association of Manufacturers’ (NAM) Shopfloor blog, said that in order to see continued growth across all manufacturing sectors, Washington must put through more business-friendly policies.

This issue will be directly addressed at Day 2 of our conference, Commodity EDGE: Sourcing Intelligence for the New Normal. (The kickoff sessions begin later today!) Attendees will get both US and European policy perspectives at the panel discussion, “Public Policies Sure to Impact Sourcing Organizations.” 

Jennifer Diggins (Director, Public Affairs for Nucor Corporation) provides incisive policy viewpoints from the domestic steel industry’s perspective.

Thierry Decocq (Founder and Managing Partner of YQ Purchasing in Belgium) leverages creativity in the procurement process — if government policies are unbending, the wisdom goes, there must be more creative ways to structure your buys to help your margins.

And Mike Zadoroznyj knows a thing or two about regulatory compliance. As VP Product Center, Treasury and Regulatory Compliance Division at Triple Point Technology, Mike’s insight can help navigate manufacturers through periods of uncertainty.

In our messy policy landscape, manufacturers need to know which policies not only affect their business today, but which ones will rear their heads in the future. Uncertainty in prices and policies may reign for now, but equipping yourself with strategic sourcing practices to best meet those challenges — that’s up to you.

*Make sure to visit MetalMiner all day tomorrow for the latest updates from our panel discussions, keynotes speeches and breakout sessions!

Source: money.cnn.com

“As metal prices are extremely volatile, the delay incurred by proposing and passing legislation [to substitute nickel and copper in US coins] could result in the new compositions being outdated by the time of their enactment,” the U.S. Treasury said in its budget proposal. Reuters

“Today in Science we read the book “The Very Best Place for a Penny” written by Dina Herman Rosenfeld.” -Email update from local after-school program

In a rare Arts & Culture segment, MetalMiner had the chance to sit down with author Dina Herman Rosenfeld, whose has just released a new book.

MetalMiner: Hi Dina, thanks for sitting down with us today.

Dina Herman Rosenfeld: Anytime, thank you for having me.

MM: Let’s talk about the meaning of the title of your new book; “The Very Best Place for a Penny is a Scrap Mill in China.”

DHR: Well, my last book, “The Very Best Place for a Penny,” was written back in the old days, in the times when people actually used pennies and nickels and dimes to purchase things. They would carry them in their pockets, take them out when they wanted to buy something, and put them together in different combinations to pay for their soda, say, or a ticket to a peep show. Now, those days are mostly over.

MM: Yeah, tell me about it — I just throw my pennies in the garbage. But back to the title; how is the very best place for a penny the scrap mill?

DHR: Have you seen the market prices for copper lately? [Dina’s emphasis]

MM: Why, yes we have actually.

DHR: Then you know that any copper out there is more useful in construction and transportation end-uses in emerging markets rather than rotting away on our coins. Or even as a store of value in physical metal ETFs, if that’s your bag. Copper smelters in China would kill for some copper scrap, I imagine. Now, granted, pennies haven’t been pure copper since 1837. But the US Mint still makes nickels with 75% copper/25% nickel, and the penny is about 2.5% copper — the rest of it is zinc. All three of those metals’ prices have risen drastically in the last 10 years.

MM: So basically what you’re saying is, commodity volatility has hit even the government’s spend pretty hard.

DHR: Indeed it has. Apparently no organization is safe from commodity volatility risk.

MM: Will you be able to make it to our conference in March? We’ll comp you.

DHR: You betcha.

This interview was fictionalized, condensed (poorly) and edited by Taras Berezowsky.

Looks like ZincOx will drop the mining yoke and start pulling the recycling plow.

The FT reported that the UK-based company, originally invested in zinc mining, will be shifting over to zinc recycling to become profitable again. ZincOx built a plant in South Korea, and after it finally begins producing and selling finished zinc, looks to expand to Turkey, China, and the US.

The zinc market, as the FT points out, has had its share of volatility. LME inventories have risen since the start of 2012 in an already oversupplied market, as the graph below shows, and the zinc price is more than $2,000 per ton. (This, after falling from about $4,500 a ton in 2006 to just over $1,000 a ton in late 2008, according to the paper.)

Source: John Gross/Copper Journal

ZincOx will be adding to net global zinc production soon — perhaps as soon as five weeks from now, following final tests.

How the Technology Works

Electric arc furnace dust (EAFD) is a toxic byproduct of the EAF steelmaking process, containing cadmium, lead and zinc (18-24% grade). ZincOx has been honing a process for six years, by which they can extract the zinc portion from EAFD (at a purer grade than mining it from the ground, no less) and produce zinc concentrate.

For context, about 1.5 million tons of zinc are lost to dust during the EAF steelmaking process per year, while zinc production is about 12 million tons per year, according to a presentation last September by Andrew Woollett, ZincOx’s executive chairman.

In the presentation, Woollett outlined how the technology works by showing this slide:

Source: ZincOx Resources-Andrew Woollett

They take the dust and mix it with pulverized coal and put it into a briquette. Then they dry, cure and screen it to insert clean briquettes into a rotating hearth furnace (RHF), Woollett said. That yields 58% grade zinc concentrate, which goes to a zinc smelter, while the iron-based remainder can go back to EAF mills. Ultimately, it’s a sustainable, closed-loop process. (More detail on that here.)

How Steelmakers Win

EAFD has been a thorn in steelmakers’ sides for years, according to Joanne Hart in this article. “Many treat it as toxic waste, placing it in special bags and sending it to landfill sites, a process that is wasteful, environmentally questionable and costly.”

According to the FT, that can cost $40-50 per ton. Hart writes that operators of special kilns that recycle the waste “charge at least £50 [$78] a ton to remove the dust from steel furnaces and the zinc produced is relatively low grade.”

However, ZincOx offers to take the EAFD off steelmakers’ hands for free. (The new Korean plant will be able to process 200,000 tons of dust per year.)

“‘It’s very important to get the dust supply,” Woollett told the FT, ‘adding that he was forging strong ties with the steelmakers by offering deals where the waste suppliers would be compensated for rises in the zinc price. “‘We cut them in on the upside.’”

How the Zinc (Supply) Market Wins

  • Total zinc production potential next year: 92,000 tons. (Every 100 tons of dust can yield 22 tons of zinc.)
  • Companies such as Korea Zinc (with which ZincOx has already inked a deal) agree to buy the finished zinc; essentially a market is already in place.
  • Environmentally friendly recycling could make a dent in cleaning up China’s dirty zinc smelting industry.
  • According to the USGS, about 53% (134,000 tons) of the slab zinc produced in the US in 2011 was recovered from secondary materials—mainly electric arc furnace dust; this figure could definitely increase if ZincOx successfully brings its technology here.

My colleague Stuart wrote a piece published today about the nickel market, specifically that it remains in oversupply. The ensuing discussion came about just as I had intended to put the finishing touches on a presentation providing an outlook on the steel and stainless market (and realizing we better have something intelligent to say to explain the $5000 per ton increase in nickel prices since December).

Stuart and I both agree nickel faces an oversupply situation. And we both agree that the world is awash with stainless capacity. Where our opinions may differ lies in our interpretation of the demand signals. Though China remains the 800-pound stainless gorilla (in production and consumption), the US market has more than a faint pulse. In fact, based on my own [anecdotal] conversations with US manufacturers, I typically hear the following with regard to demand: “We’re having a good year…not quite a 2007 year, but a good year.” Others echoed this sentiment and even the distributors and producers share similar opinions. Will that drive stainless prices higher? We can’t say for sure, but stainless steel does have a few things going for it.

Look at the Raw Materials

Stainless steel shares several raw materials with steel – iron ore, coking coal and scrap. How do the markets for these materials look? Flat to lower, lower and higher. Okay, more explicitly, though iron ore hasn’t reached its 2008 highs, even at $140 per ton it remains comparatively high — substantially higher than the days of $60-per-ton iron ore. Take a look at coking coal:

Source: EIA and MetalMiner IndX(SM)

Check out scrap prices that appear extremely well-supported:

Source: Steelbenchmarker, MetalMiner IndX(SM)

We haven’t seen anyone call for serious price drops for any of these three steel raw materials. So let’s move onto what drives stainless markets.

Moly, Chrome and Nickel

Source: eStainless, MetalMiner analysis

Clearly, once we add January nickel data into the equation, we can see two raw materials trending upward. And don’t get too excited by flat-line chrome; check out this chart from HSBC:

Source: HSBC

“So what?” you say? In another recent piece Stuart wrote, he quoted South African producer Merafe: “The texreport says the country was paying US $0.06 per KwHr in 2010 (compared to $0.04 in Kazakhstan, $0.085 in China and $0.09 in India), but that expected power cost increases by Eskom, South Africa’s near-monopoly power producer, could lift that to $0.135 by 2015, compared to comparable levels in China, but still just $0.05 to $0.06 in Kazakhstan.” Somehow we don’t think Borat secured additional ferrochrome supply back when he made his hit film! (Not so “verry naaice!”)

So at a minimum, one has to consider a slightly bullish case for ferrochrome; perhaps not in the immediate term, but certainly in the middle to longer term. That leaves us with our friend nickel, as Stuart has aptly described.

How does one examine what has really happened in the stainless market? Look no further than the surcharges? Roller-coaster ride, anyone?

Source: eStainless.com, MetalMiner IndX

Surcharges, however, follow what the mills see in the market and therefore to some extent, they appear as lagging indicators. Allegheny Ludlum, in a recent earnings announcement, indicated they felt that raw materials face less volatility in 2012 when compared to the recent past. We’ll see if that translates to lower surcharges. My read of the raw material price trends suggests a mixed bag.

Stainless Capacity

We haven’t touched on stainless capacity (that pretty much everyone agrees remains in oversupply both globally as well as in the US). With several announced re-starts — I have read analyst reports indicating as much as 5 percent of US capacity will come on-line in 2012 — one could easily conclude prices will drop.

That leaves us with the demand side of the equation, which we’ll tackle in a follow-up post.

Lately, our most popular inbound phone call involves our soon-to-be-released GOES Index followed by the rant/request for our thoughts on the latest steel mill price increases. That call basically goes like this: “Lisa, the mills have raised prices again, but I don’t see how the raw material prices support the increase. What do you think?

By habit I tend to say, “let me take a look and I’ll write a post on it.” So, we will now attempt to answer the question does the underlying raw material data support the recently announced mill price hikes? We could argue both yes and no.

The Case for Yes (Price Increases Are Justified)

As a fan of history, one need only look back over the past three years to see that scrap prices (though we’ll only show HMS #1 as an example) remain stubbornly high. Now granted, we haven’t seen any great price movement in August. In fact, according to The Steel Index, domestic shredded scrap prices have traded within a relatively tight spread — a low of $440/long ton in May to a high of $463/long ton in July, only to settle somewhere in the low $450’s/long ton now.

Sources: Steelbenchmarker.com and MetalMiner

The Case for No (Price Increases Not Justified)

Obviously, with no obvious upward sloping line, buying organizations may quickly come to the conclusion that a price increase seems out of line. However, when one considers seasonality and the timing as to when steel prices peak and trough within a calendar year, a different story starts to emerge. First the factoids:

  1. Steel prices bottomed in mid-August
  2. Turkey has recently experienced strong domestic demand for rebar, according to The Steel Index, and Turkish demand serves as a great proxy for steel scrap price direction
  3. Demand often picks up after Labor Day

As another example, take a look at this nearly two-and-a-half-year price chart of hot rolled coil prices:

Sources: Steelbenchmarker.com and MetalMiner

Price troughs have occurred in the summer months (July/August) as well as in the month of December (or November). What follows looks like an upward price ascent immediately following each trough. Although scrap prices have held steady (remember, they remain historically high) and we haven’t even commented on either coking coal or iron ore (other key raw materials), steel prices have already bottomed. And if history tells us anything, mills may have taken their pricing queues from that. When we hear mills talk about “market conditions,” we can infer they have analyzed similar trends; at least we can say that with some reasonableness based on the past couple of years.

Steel producers believe “market conditions may appear ripe for a price increase. Of course that only holds true if demand holds true. So you tell us how does demand look?

–Lisa Reisman

Source: 14kgoldteeth.com

Strangely, gold is the hottest commodity quickly and pervasively filtering not only into investment portfolios and central bank coffers, but also into peoples’ mouths and onto their teeth.

To wit, one of our posts about gold grillz — the technical name for gold-based jewelry custom made for the oral cavity — is the most-read post of the summer. Go figure.

The important thing is that we sometimes like to have fun with satire and silliness amidst our commentary on metals markets, sourcing strategies and macroeconomic issues and policies, and this next installment of MetalMiner’s Best Of Summer Series showcases just that. Enjoy!

1. Gold Grillz A Hedge Against Dental Monotony

2. A Thief’s Sourcing Guide to Stealing Scrap Part One

3. A Thief’s Sourcing Guide to Stealing Scrap — Part Two

4. Do War Dogs Have Titanium Teeth? No But They Have Some Sweet Metal Gear

–The Editors

(A Thief’s Guide to Stealing Scrap, continued from Part One.)

2. Pay attention to the weight and amount of metal required to achieve the financial target #1 from Part One notwithstanding (“considering the forward cost curve”), one would have to steal quite a bit more aluminum than, say, nickel to achieve the financial target. The lighter metals have less appeal on this front, though we admire these thieves who stole high school bleachers:

Tip: Think small and heavy, alternatively, small and pricey

3. Ease of theft closely related to #2 above, we can’t help but wonder, given the amount of closed circuit surveillance equipment, photo-enforced traffic, etc., why a thief would even bother stealing certain items. Take for example this nickel-based gas turbine:

Source: The Nickel Institute

We do, however, understand the popularity of grave-sites. I mean, the traffic is sparse, the surveillance systems don’t appear intimidating and it’s not like the victim will have the opportunity to quickly retaliate.

Tip: Dark places still represent good opportunities, however, given the economic environment and move by some to save money on the “after-life, grave-sites may not provide ample scrap metal (see #2 above).

4. Risk of personal harm in our humble opinion, robbers and would-be robbers pay far too little attention to the very real harm of personal injury. Why a non-electrician would steal copper from a utility substation is beyond comprehension, yet nonetheless we keep hearing about these stories. Here is a recent example about a man who had his hand burned in an explosion (during an attempted copper heist).

Tip: Best to cut your electrician-friend into the deal to minimize this risk.

5. Risk of getting caught until we adopt a more Singapore styled corporal or capital punishment justice system (think public caning), scrap theft remains an excellent choice for would-be criminals. What with the evidence in a melt shop or re-cast into something else, crime stoppers have little ability to deploy novel DNA techniques.

Tip: Avoid drawing attention to oneself and try to better match your getaway vehicle with the theft at hand (e.g. try not to put a set of bleachers into an F150 — it looks slightly suspicious).

5. Plausibility of said items at the local scrap shop it seems to me that walking into the local scrap shop lugging several manhole covers ought to raise the eyebrows of pretty much any scrap dealer (let’s face it, most of our infrastructure is so old that people ought to assume we don’t have any money to ever replace them). Ditto for road signs. Ditto for rail track. And whatever you do, don’t try lugging in any nacelles to your local scrap dealer.

Tip: If you are going to your local scrap dealer, think “plausible.

Undoubtedly, other scrap theft sourcing criteria exist. Unfortunately, we are out of time and space. If you felt this post offered any useful information, please feel free to post a comment.

–Lisa Reisman

Disclaimer: This article is an utter farce. That means it’s a joke. You can’t sue us or come back later accusing us of goading you to somehow partake in said criminal activities. Theft is always illegal. If you decide to engage in a crime after reading this, then that’s your own dumb choice.

If I have to read one more story about metal scrap thefts, I might just¦well, I don’t know exactly what I’d do, but at this point, I do find the stories utterly boring. So, rather than keep re-reading the same stories about your run-of-the-mill metal theft, we thought we’d pull together a thief’s guide on sourcing metal.

To put together such an analysis, we decided to establish a set of criteria would-be criminals may find helpful. Such a buyer’s guide, if you will, ought to examine both benefits as well as costs and also point out areas of risk along with potential risk mitigation strategies.

The criteria:

  1. Forward cost curve It’s important that thieves really understand the underlying market dynamics as to where metal markets may go. For example, we saw a spate of copper thefts after the market crashed in the fall of 2008 that led us to the conclusion: Doh! Forward price curves appear plentiful on the Internet. We’ve included a few for comparison’s sake:

Forward Copper Price Curve:

Source: LME

Forward Nickel Price Curve

Source: LME

Forward Lead Price Curve:

Source: LME

Platinum (current prices)

Source: Kitco

Forward Aluminum Price Curve:

Source: LME

Steel Futures:

Source: CME Group

Tip: Focus on the metals with a positive sloping cost curve.

Check in with Part Two later today for the rest of this handy sourcing guide.

–Lisa Reisman

Disclaimer: This article is an utter farce. That means it’s a joke. You can’t sue us or come back later accusing us of goading you to somehow partake in said criminal activities. Theft is always illegal. If you decide to engage in a crime after reading this, then that’s your own dumb choice.

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