by MAURA KELLER
The global steel market today is stabilizing somewhat.
As Amenduri explained, much like global steel prices generally, scrap metal prices have been deeply impacted by the ongoing trade tensions between the U.S. and China.
“Unless there is an unforeseeable change in policy, President Trump is still planning to introduce metal tariffs for imports into the U.S.,” Amenduri said. “This, naturally, will have a sizable effect on the scrap metal trade. Pretty much anything is possible at this juncture, and speculators are predicting everything from a better scrap metal market to higher prices for consumers.”
Michael Jenny, who has more than 15 years of experience in the scrap metal and recycling industry and is managing director of investment banking firm
Livingstone, has seen a lot of consolidation and strong transactional activity as well as greater global reach across the board.
“The market’s evolution is a direct response to market demands and future opportunity,” Jenny said.
“Recycling is the first link in a global supply chain – to become a vital part of the supply chain, your value lies in how much supply you can get in a region on a consistent basis. This model naturally lends itself to value in scale. The greater your supply and the more expansive your geographical reach – the more important you are to the supply chain.”
Generally speaking, 2018 was a big year for mergers and acquisitions (M&A) in the metals space. Led by 3 mega-deals, the market experienced a 113 percent growth in average deal size and 68 percent of that deal value involved an acquirer within the Asia and Oceania region.
“Though political headwinds may have played a role in creating a slightly more challenging deal environment in 2018, we anticipate consolidation to continue into 2019, fueling the market’s continued evolution, particularly in the Asia and Oceania region,” Jenny said.
Trade policy and China’s shifting perspective on scrap imports is causing the industry to change a little bit as U.S. owners are looking to other countries, like Turkey and India to export to. And as Jenny explained, as a result of these shifting tailwinds, the U.S. has received more inbound interest from international players who are keen on looking at assets to strengthen their U.S. domestic presence.
“Here again, we anticipate continued consolidation to make an impact on the market,” Jenny said.
As Amenduri further explained, while the current scrap metals market evolves, what we do know is that, with the possible exception of Canada and
Mexico, any countries that bring in raw steel or aluminum into the U.S. would be charged a tariff.
“This would discourage steel exporters like China. American companies that use the scrap metal from international companies would suffer a financial blow and would need to find ways to adapt,” Amenduri said.
But as Jenny explained, tariffs, like anything, move commodity prices and cause a disruption in the market. The companies that are more agile and nimble to react to the change are poised to benefit.
“Tariffs are also driving American companies to become more innovative in finding new markets to export to and new innovations to maximize metal recovery from scrap. This is driving overseas companies to look at ways they can increase their presence in the U.S.,” Jenny said.
Clearly, this is the top concern among scrap metal recyclers worldwide and it’s keeping the market in what might be called a wait and see phase. “Still, the international scrap metal business remains resilient, with a 2018 year over year growth rate estimated at 2.65 percent and a CAGR of over 3 percent,” Amenduri said.
On the Horizon
If macro-political and -economic factors don’t get in the way, Amenduri stressed that the scrap metal business should experience incremental growth through 2022. “Don’t let this projection lull you into a false sense of security, however, as scrap metal prices are known to be volatile and prone to factors that are far beyond the control of scrap metal dealers,” Amenduri said.
So what issues should recyclers pay attention to? In addition to tariff concerns, the volume of supply and the scrap quality affects global scrap metal prices. “Like other commodities, steel and aluminum are impacted by supply and demand, and in the case of scrap metal, investors also must pay attention to the construction and automotive industries, among others,” Amenduri said.
Another factor is the pace of innovation as it relates to the purification of scrap metal. For many years, the construction sector used asbestos in their buildings, plants and housing structures, chiefly due to its strength and thermal insulation properties.
As Amenduri explained, the release of asbestos fibers into the atmosphere was found to cause serious health hazards to occupants when these structures were demolished. Regulatory bodies are monitoring the construction teardowns of buildings that contain asbestos. “So now, vendors are looking at innovative methods to purify contaminated steel scrap obtained primarily from the construction sector,” Amenduri said.
A major innovation continuing to take place within the industry is the use of technology to improve metal recovery from waste streams. As Jenny explained, this innovation isn’t coming from one particular country but is instead being embraced industry-wide in order to get more money out of the waste stream.
And for the scrap metal recyclers themselves, more versatile and efficient scrap processing equipment can lower overhead and increase the bottom line for businesses while reducing costs for consumers.
According to Amenduri, the innovative trend in this area is to be found in SBLs, or shear/baler/loggers, the modern type of heavy-duty machine engineered specifically to provide scrap recyclers with the versatility to process both heavy metal materials and light metals.
“These innovations are crucial to the American and global economy, as the scrap metals business provides jobs (over 450,000 jobs in the U.S. alone), generates tax revenue ($10 billion in revenue for state governments), saves energy, provides for the conservation of natural resources and prevents scrap from getting into landfills,” Amenduri said.
That said, the U.S still lags behind much of the world in our UBC recycling rates. “In general, we need to increase our recycling rates – this starts at home,” Jenny said. “The implementation of technology to help refine scrap metal recycling while driving productivity will continue to prime the market for disruption to define what success looks like in 2019.”
Of course the amount of global scrap metal recycling that the U.S. is doing has been greatly impacted by the recent standards imposed by China, whereby for certain recyclable materials no more that 0.5 percent contaminants would be allowed – far below industry standards. As a result of China’s ban, which became effective March 1, 2018, there has been a significant impact on the waste and recycling industry in the U.S. If this continues, many recycling businesses in the U.S. will end up shutting their doors.
But even worse, the environment could suffer as a result of China’s unrealistic restrictions on imported recyclables. Here’s why: According to the National Waste & Recycling Association (NWRA), the environment could be the biggest loser when recycling programs fail and manufacturers revert to using resource intensive virgin materials.
As a result of the impact China’s ban is having on the scrap metal industry, the NWRA recently sent a letter to President Trump asking the president to address this issue with China’s president Xi to “seek a mutually beneficial compromise that allows for the import of clean, high-quality recyclable materials vital to their manufacturing base.” The NWRA stressed to President Trump that the fallout from this ban could have a devastating effect on recycling that may set the industry back decades.
“What the future holds for the scrap metals market, then, is growth, innovation, and above all, hope,” Amenduri said. “This includes hope for a cleaner, less wasteful, and more sustainable global landscape where despite political and economic differences, jobs are plentiful and businesses can prosper.”
Published in the April 2019 Edition