Markets that had looked strong and resilient as recently as April this year have become decidedly fragile in June and July, according to expert feedback contained within the latest World Mirror on Non-Ferrous Metals from the BIR world recycling organisation.

Metal prices have undergone a downward correction of typically 10 to 30 per cent and have remained vulnerable to the high levels of volatility reported throughout 2022.

As far as the ferrous market is concerned, demand for steel turned sharply lower in the second quarter of this year, amid a swathe of negative macroeconomic factors and lower growth forecasts from various economic research institutes, according to the latest BIR Ferrous World Mirror publication.

The report highlighted that world crude steel production among the 64 countries reporting to worldsteel reached 158.1 million tonnes in June - a decrease of 5.9 per cent compared to the same month last year. Some 949.4 million tonnes of crude steel were produced in the first six months of 2022, or around 5.5 per cent less than in the corresponding period of 2021. In January-June 2022, crude steel production was lower in almost all leading countries when compared to the same six months of last year, with the notable exception of India where production of 63.2 million tonnes represented an increase of 8.8 per cent over January-June 2021.

In the report, Dhawal Shah, Metco Ventures LLP, President of the BIR Non-Ferrous Metals Division, said this summer has been a period of uneasiness and anxiety. “There is very little happening in the markets to inject confidence and stability, with problems ranging from global high inflation and central banks’ interest rate interventions to bad debts piling up in China’s housing sector; from continued insecurities about gas supplies to Europe to a growing labour market crisis; from currencies getting battered against a strong U.S. dollar to whispers of the word ‘recession’.”

The market in Ukraine is continuing to function although street collections of brass are reportedly only a fifth of pre-conflict volumes. Domestic copper collections are sufficient to cover internal demand whereas exports and imports are said to be non-existent owing to slower demand and the gap between the official and cash currency rates. At the same time, scrap suppliers in Russia are carrying plenty of stock purchased at higher LME levels and currency rates, which they are not ready to move at current market prices owing to the absence of relevant hedging, according to the report.

Ibrahim Aboura, Aboura Metals, Board Member of the BIR NonFerrous Metals Division, commented, “All of the base metals on the LME (London Metal Exchange) had been declining until finding some stability in more recent days. The weakening global economy and manufacturing slowdown have been evident for some time owing to a combination of factors, including: an intensification of the power crisis as a result of the political situation in Europe; and continuous supply chain disruptions due mainly to the lockdowns in China.”

In the Middle East, there is a slowdown in metals demand and prices owing to declines on the LME leading to lower volumes of supply. Shorter working hours in the Gulf region over the summer period has further slowed procurement in general, he added.

Speaking to Waste & Recycling MEA, Anshul Gupta, CEO, PGI Group, said, “One of the key recent developments was the U.S. Federal Reserve’s largest hike in its benchmark interest rate. Because of this, there has been a big change in the prices of commodities. Copper price has gone down by 25 per cent and aluminum by 40 -45 per cent from their peak. All metals are undergoing correction.”

“Earlier, the metal recycling market faced hurdles from the high logistics cost, but now the high inflation rate across the globe is hurting the industry. The borrowing cost from the banks is going up and the prices of commodities are falling. We are experiencing a double whammy,” he noted.

Inflation is a concern nearly everywhere, with latest figures including 7.7 per cent in Mexico and 9.4 per cent in the UK - the highest numbers recorded in 21 years and 40 years, respectively. The Fed’s policy and the strength of the U.S. dollar have had a dampening effect on demand for metals.

Denis Reuter, TSR Recycling GmbH & Co. KG, President of the BIR Ferrous Division, said, “We are seeing unbelievable high energy prices. Prices for gas and oil are just soaring. And there’s always the fear, especially in Germany, where I am based, that in the short term we might see cuts in gas supply on a larger scale. So this is hurting the economy and this is hurting the overall climate. We are seeing that large investments are being put on hold or even cancelled completely. The scrap industry - both ferrous and nonferrous alike - is struggling.”

Other challenges

 Ehsan Haji Amin, Advisor, Ala Group, said, “In developed countries, repercussions of the COVID-19 pandemic have hit the scrap metal recycling sector as well. As a result of which, many scrap yards have shut down or are working at reduced capacities. Besides this, the pandemic has impacted shipment of metals in India.”

Scrap metal routes in both bulk carriers and containers jacked up prices for the secondary raw material and have also impacted heavily on the end-product prices, he added. “Similarly, higher freight costs drove up secondary metal prices which got imported from containerised vessels.”

Stability or temporary relief ?

The BIR report calls the recent period of greater stability in ferrous scrap prices as potentially temporary. Reuter said, “Since the end of June, a stabilisation of Turkey’s steel scrap import prices has been accompanied by a cautious revival of demand for Turkish steel and a decline in Russian exports of cheap steel billets and iron ore which had been finding their way into Turkey and many Asian countries following the imposition of sanctions. However, it remains unclear whether this is the end of the downward movement or only a temporary stabilisation.”

There is still hope for new infrastructure programmes in China which, to date, have only been announced but not yet implemented by the government. The biggest risk for the outlook remains a cessation of Russian natural gas supplies to Europe, further logistics problems and a resurgence of COVID waves in the autumn, he added.

Gupta is confident that following the correction, the market will revive. “The metal scrap recycling industry has always been resilient and it will surely bounce back,” he said. “In four to six months, we will be realigning to a new market scenario.”

Reuter said, “We will see at least a couple of difficult months until the end of the year. Nobody knows how the situation in Ukraine will develop. We’re bracing for a pretty hard landing. Of course, we are not doomed.”

“It’s difficult to look at the crystal ball right now. Anything is possible. What probably will be the factor that will have the most influence, at least in Europe, will be energy. If we get sufficient energy, things will look a little brighter than they’re looking now. Not to forget the high inflation rate. It is really an issue that we will probably have to face for some time.” There is uncertainty over Fed interest rates, China’s economy and China-Taiwan row, he said, adding, “I don’t want to sound too negative, but at the moment I see more problems on the horizon and threat to the economy than positive signs for recovery.”

Restriction on movement of scrap

 The BIR World Mirror report on NonFerrous Metals highlighted: To add to all these challenges, the recycling industry is continuing to experience pressures on the free movement of scrap. Following the introduction of an export tax on scrap metal in South Africa, there is now talk from the country’s Department of Trade & Industry and its Treasury of a ban on exports of scrap metal in the next few months. It is reported that there have been fewer export applications over recent weeks.

Amin pointed out, “Scarcity of scrap has led to bans on the export of scrap metal in countries such as South Africa. This has forced some countries to sustain with domestic reserves and increase dependency on other metals for economic activities. Interestingly, this has led to increasing demand for other metals such as copper. Post-COVID, most of the developed countries have revised their import policy from ‘Free’ to ‘Restricted’ with immediate effect,” he said.

Commenting on the EU proposal for a new regulation on waste shipments, Gupta, said that the Commission’s proposals posed major problems that would jeopardise many economies, especially Asia’s. “During the EuRIC conference, the metal recycling companies urged the EU not to consider metal scrap as waste because metal is a resource and we pay heavy price to process this resource.”

Reuter said, “I’m always an advocate for free trade because I think free trade is what has brought our economies to the level where it is today. If anyone would just think about ways to protect their own economies, in the end it will hurt all of us. I see the proposal, the revision of the new way shipment regulation, very skeptical in general.”

He added, “However, I think we will definitely need to see a shift to better qualities. No matter where those qualities are in the end being shipped to, we need better qualities, we need lower impurities, we need to get a better grip on also other chemical elements that are a problem for our customers. So this is something we, as a recycling industry, have to do as our homework.”

He pointed out that restricting free trade is not the right way to go. It will eventually hurt all the economies.

China and India hold hope

 There is still some good news to be found, however, among a number of the world’s key growing economies, India is still expected to expand its GDP by at least 7 per cent this year while the 0.6-point increase in China’s PMI in June to 50.2 is regarded as a positive sign of economic and manufacturing sector recovery. The country is looking to bolster this recovery with a stimulus package including 140 billion yuan in tax rebates and 300 billion yuan in railway construction bonds.

China has also announced plans to increase ferrous scrap consumption to 320 million tonnes by 2025, along with a goal of 20 million tonnes of recycled non-ferrous metals in the next five years. China Customs data indicate that copper scrap imports totalled 158,000 tonnes in May for increases of 16.9 per cent month on month and 13.5 per cent year on year.

“Of course, if China gets a grip on its economy again, it will have positive effects for the rest of us, that’s for sure. And despite the high increases in inflation rates, the U.S. economy is not doing really bad at the moment. In Europe, the transition to CO2 neutrality is good news for the recycling industry,” Reuter added.

Talking about the Indian scenario, Amin noted, “Lower metal production by China and the RussiaUkraine conflict has adversely impacted the demand-supply and led to an imbalance in the global arena, especially in Europe, which has created an opportunity for India to expand its export to Europe, Middle East, and the US. However, the Indian government’s recent decision to hike the duty on exports of iron ore by up to 50 per cent and a few steel intermediaries to 15 per cent will restrict the substantial business volumes.”

The green push

The push for a circular economy in the UAE and the GCC holds promise for the metal recycling industry.  Amin said, “Rising concerns over the impact of mining on the environment are anticipated to boost the growth of the scrap metal recycling market in the coming years.” The mining and metals sectors are working to reduce the direct emissions from their metal production facilities, and consumers are increasingly focused on the ESG credentials and indirect emissions of the metals consumed in their supply chain. The incremental demand for scrap metal will continue in the next decade as well, Amin added. 

Reuter said the future is really bright because recycling is becoming a megatrend. “Everyone is thinking about ways to decarbonise their production and to lower their CO2 footprint. So in the medium to long term, the future of recycling industries are extremely positive.” He noted that the demand for scrap will rise not only in Europe but all over the world. 

Gupta noted, “Following increased focus on sustainability, the recycling rate of aluminium and copper have increased in the UAE. Seventy per cent of copper is being recycled and reprocessed locally. It is not being exported anymore. In the next four or five years, a lot of initiatives will be taken in an effort towards closing the loop.”