2016 was a year of volatility and increased risk with metal recyclers and commodity dealers facing many ups and downs in the business. The metal recycling industry is directly linked with the global commodity markets and the sector was affected by the overall decline in oil prices and the sluggish global economy combined with a tight cash flow. The market conditions remained tough for most part of the year, though the last quarter of 2016 saw a r easonably buoyant world economy and slightly more confident financial markets, largely due to favourable conditions in emerging economies and somewhat stronger performance in developed countries.

Modest performance

“Growth in the metals industry remained modest at the outset of the weak global economy. 2016 was characterised by consolidation, focusing on lowering inventory levels to offset the high supply-low demand situation,” said Vikram Rajeev, Industry Analyst, Metals & Minerals, Frost & Sullivan. Competition remained high amongst existing companies said Rajeev, and lowering cost and utilising excess capacity that came into existence during the up-cycle of the market was priority. “This resulted in the imminent need to grow into new product lines and markets, and shift operations to lower cost locations. Industries and governments continued to mitigate cheaper imports to protect their domestic market,” he noted. The Middle East was hit by the oil price crash in early 2016 and led to a slew of cost curtailment measures by various governments in the region.

A number of building and infrastructure projects were put on hold which adversely impacted the ferrous and non-ferrous metals industry in the region, said Rajeev. “The lifting of Iranian sanctions saw the global market assessing its impact on trade. India was also hit by lowered demand in the domestic market as a spill-over from 2015. Industrial growth remained slow, and producers continued to resort to exports to relieve excess stockpile. The Middle East and Indian metal scrap sectors faced a low supply situation, and continued to rely on imports in 2016.” Dr. Sayed Hussain, Managing Director of Sayed Metal and G.P. Thiyagarajan, General Manager -Operations, Crown Industries, Bahrain, agreed that in the Middle East “oil reached its deepest downturn”, which consequently impacted most industries including the metals sector severely.

“Several people lost their jobs and although companies managed to cut costs, business remains unprofitable for many,” said Dr. Hussain. Thiyagarajan pointed out that LME prices were not stable, buyers were waiting for further market correction and the suppliers waited for the market to trend up. “It was a waiting game. But the extreme price changes somewhat came to an acceptable position in Q4,” he commented. Global market remained mostly uncertain, but picked up immensely at the end of 2016. “The main factor in 2016 that is considered to have significantly affected the market is the election of Donald Trump who promised more infrastructure spending and made investors assume that he will lead a more business friendly environment,” Dr. Hussain noted.

Key Trends and Outlook

With Chinese producers continuing to reduce capacity and consolidate, the global metals industry is expected to slowly recover from the excess supply glut, said Rajeev. “Improved technology adoption for new product and market expansions will be an important focus for the global metal industry in 2017- 18. Lightweighting is a key trend in the industry,” he remarked. In 2017, the metals sector is expected to be more stable as “all parties have learned lessons in the past with huge inventories,” said Thiyagarajan. “Both buyers and sellers are to play a safe game with lower inventory, back-to-back contracts and so on.” Back in 2008, the metal world suffered heavily due to “artificial or fictitious market prices”, he commented. Since then, he said, there has been a change and the present price trend looks genuine and reasonable, “therefore, the market should be more stable and safe.”

Trends towards cost optimisation, customer and channel partner collaboration, and strategic decision making by utilising real time market are seen particularly in markets such as the Middle East and India that are characterised by labour intensive processes, Rajeev underlined, adding that over the next 3-4 years “the metal industry will focus on sustainable production and will look for ways to address scrap shortage.” The dynamics are changing in ferrous scrap trade, with some nations that formerly imported large quantities of scrap now sourcing more material within their own borders, said Ved Prakash, Steel Division Head at Gemini Corporation N.V., in the course of his presentation at the Recycling Confex Middle East event held recently in Dubai.

“The scrap markets may encounter major shifts in the near future,” he said, also noting that South Korea’s scrap imports have been continually declining since 2012 to almost have the level in 2015. And it is not the only country with a reduced appetite for scrap imports, he stated. “Taiwan which is third largest importer of scrap has also reduced the scrap imports by a whopping 40% in the last 5 years.” The result of such trends is that cross-border ferrous scrap trading has declined from a peak of 105.6 million tonnes in 2011 to fewer than 84 million tonnes in 2015. “India might become self-sufficient with regard to scrap and may even be an exporter,” Prakash noted. “Markets are maturing and more countries are becoming self-sufficient” in terms of ferrous scrap, which also denotes “growing trends of domestic scrap generation and consumption” in developing economies.

Some of new import markets include the emerging economies such as Bangladesh, Peru, Iran and Mexico, said Prakash, and if China continues to rely mainly on basic oxygen furnace (BOF) steel production, it could soon become a net ferrous scrap exporter. In Dr. Hussain’s view, “political ambiguity may bring about doubt on price sustainability over the course of 2017.” In the short term, he said, prices may continue to rally. However, this could bring in more supply and discourage demand. “Demand may mostly rely on China and on its massive credit and real estate market,” he said. Going by the current sentiments prevailing in the industry, it seems the stage is set for another challenging year!