Although recyclers may not have especially fond memories of 2015 or early 2016, several sessions at the Institute of Scrap Recycling Industries. (ISRI) 2016 Convention & Exposition (ISRI2016) in early April in Las Vegas looked at the opportunities that may yet exist.
New hedging contracts on the aluminium trading side were a topic of discussion at ISRI’s “Aluminum Spotlight.” Panelist Fred Penha of the Chicago-based CME Group said the firm has been “building out” its group of aluminium contracts so scrap recyclers can work with fixed pricing on the buy and the sell sides.
He said CME’s new Aluminum Midwest (AUP) contract has been gaining adherents, adding that CME’s metals division was involved in “100,000 metric tons of hedging just last week.” The firm also offers a contract indexed to Metal Bulletin European aluminium pricing.
Penha touted CME’s warehouse network for physical metal storage as being readily accessible. “You can get your metal out in a few days [with] no long queues,” he said, likely referring to complaints that have been made about the London Metal Exchange (LME) warehouse in Detroit.
Panelist Muryam Bayram, who works from Germany for United Kingdom-based scrap processor European Metal Recycling (EMR), said currency fluctuations have provided another source of volatility for aluminium traders.
In addition to price volatility, reduced scrap supply has been the foremost challenge facing EMR and other aluminium scrap processors, Bayram said. Ferrous pricing that fell from $400 per short ton at the beginning of 2015 to less than $200 by the end of the year “has an influence” on “the small suppliers bringing in scrap,” he said. Bayram estimated that flows from that segment of the supply chain in Europe (for ferrous and nonferrous) could be down as much as 40 from 2014 levels.
Regarding China’s role as an ongoing buyer of aluminium scrap and the health of the Chinese economy, Bayram said a statistic he looks at is the time lapse in invoice payments. Citing data from French insurance firm Euler Hermes, he said the average invoice payment time in China has grown from 55 days in 2007 to 83 days in the first quarter of 2016. “Banks still don’t trust other banks” in China, Bayram said, adding that he also has seen “a lot of cutting back on credit lines.”
Regarding aluminium’s near-term future, Andre Marshall of Crunch Risk LLC, Houston, said indicators he looked at led him to believe premiums for the metal could rise, if not the exchange price. He added that he “doesn’t see a fundamental supply-demand imbalance anywhere in the world” for aluminium.
Bayram said he recently attended a metals industry conference in Iran, adding that if that nation avoids new sanctions, opportunities are likely for metals production growth there.
He said it is likely scrap recyclers “will never have again the fantastic markets of 2000 to 2008.” Bayram added, “If you hold with one hand onto the past, you can’t have both hands free for the future.”
Although low oil prices have caused some economic difficulties in the Middle East, the Middle East North Africa (MENA) region remains a vibrant source of scrap metal, according to presenters at another session at ISRI2016.
Salam Al Sharif, chairman of the United Arab Emirates (UAE)-based Sharif Group, said the urbanization rate of the Gulf Cooperation Council (GCC) nations grew from 48% in the 1970s to 80% by 2000, spurring tremendous amounts of construction in the region. He said 20% of the tower cranes in use globally can be found in Dubai.
The Sharif Metals division of the Sharif Group helps collect and process some of the 5 million short tons of scrap metal now generated annually in the GCC region. Sharif Metals handles some 600,000 short tons of scrap each year and also produces secondary aluminium alloys and secondary lead.
Although declining oil prices led to a “tough year” for the region in 2015, Sharif said forecasters are calling for 3.7% gross domestic product growth in the GCC region in 2016.
Mae Dela Cruz of UAE-based Sayed said traders and recyclers who wish to conduct business in the MENA region should start with the GCC nations and the UAE in particular “to assess the opportunities in the region.”
She said people who have preconceptions about the Middle East, including the role of women in business, may be surprised by what they find throughout the GCC. The notion that business is done personally and face to face, however, is true, Dela Cruz said.
While physical security issues are on the minds of people reading about Iraq and Syria in the news, she said the MENA region is a safe place to conduct business in terms of currency volatility because “we trade in U.S. dollars.”