A Resource Recycling market assessment:

by Jerry Powell, Resource Recycling %3575 Interrelated political and economic dynamics

contribute to an uncertain future for steel scrap.

Scrap shipments to China are expected

to increase.

~esource Recycling February 2001

Will capacity rationalization 2 help? Even on this rising tide of consumption and production, some U.S. producers are sinking.

Northwestern Steel &Wire (Sterling, Illi- nois) filed for bankruptcy in December, mak- ing it the ninth steel producer to move into bankruptcy court in recent years. In addition, another steelmaker - Gulf States Steel (Gad- sen, Alabama) - was liquidated in 2000, and

handful of weighty questions bear rn mdown on the ferrous scrap market. Predicting where the market is headed hinges on the answers to these inquiries.

n Are the steel industry's current woes temporal or permanent?

The booming American economy over the past nine years has hurt, not helped, the

workers, and industry and union executives are ready to make good on these pledges. Too, the choice of Paul O'Neill, a metal industry executive, as the nominee for Trea- sury Secretary, has been seen as another sign that the Bush administration will listen close- ly to appeals by steel producers to limit imports.

Donald Evans, the nominee for Commerce Secretary, has told Congress that he will pro-

domestic steel industry. other producers announced plans to Rising demand for steel in the shutter plants. For example, Auburn

U.S., coupled with a strong dollar, Steel is closing its 350,000-ton-per- has led to a flood of imports, many year Lemont, Illinois mini-mill this allegedly sold at deflated prices by month. The facility had been losing producers from countries where money and operating at just 85 per- the federal government provides cent of capacity. The closure will substantial aid to steelmakers affect 255 workers. The firm's other because of high levels of employ- mini-mill in Auburn, New York con- ment. U.S. steel consumption tinues to operate. increased in 2000, and U.S. raw- According to stock analysts and steel output, at 11 1.5 million tons, credit-monitoring firms, additional was up 6.9 percent. However, steel bankruptcies and mill closures are like- prices fell 30 percent, to a 20-year ly before mid-year, given the precar- low, partially due to a 12 percent ious financial situation for a number

of U.S. steel producers. As a stopgap meas- ure, the federal government has provided $550 million in loan guarantees to seven troubled firms.

Steel market experts contend that over- capacity haunts the industry, and the closure of additional capacity should aid the remain- ing producers. In addition to mill closures for financial reasons, some electric-arc-fur-

increase in imports. The domestic steel indus- try operated at 86 percent of capacity in 2000 but at about 70 percent in recent weeks.

Many domestic steelmakers are predict- ing the new administration in Washington is likely to offer regulatory relief from the onslaught of cheap imports. Vice President Dick Cheney made several campaign prom- ises in this vein to the steel industry and its

tect US, businesses and workers from unfair competition, saying "trade must never be a one-way street." Evans plans to consider a steel industry request for major irnpor-t relief. "I'm concerned when I hear that our trade laws are not being enforced; I'm concerned when I hear trade agreements are not being complied with." Evans once worked as a steel engineer.

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As the industry continues to compare tipping fees and product sales with landfilling and other options of utilization for organics, markets will become a leading issue. When tipping fees become more com- petitive, what will happen to the masket price for compost? When wood fuel becomes more of a reality during fuel shortages, what will happen to the market price of compost? If you analyze almost any oth-

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nace operators, especially those on the West Coast, are expected to take substantial downtime this year due to the extremely high costs of electricity.

factors supportive

Even if a higher percentage of steel used in the U.S. in 2001 is made here by fewer producers, will this be a good year for steel?

Scrap processors were encouraged, perhaps falsely, by a frenzy of activity as the new year started. Many domestic mills had worked down inventories at the end of 2000 for tax purposes. At the same

Overcapacity plagues the domestic steel industry.

time, scrap yards saw a substantial falloff in flow over their scales as peddlers cut back collection efforts because of poor prices. When much of the country was hit by inclement weather, steel mills scram- bled to get sufficient volumes to keep furnaces running. Thus, Jan- uary prices rose about $10 per ton.

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Even so, early economic indications suggest that this will be a vely tough year overall for the domestic steel industry and thus for scrap processors. Most economists predict growth of about 2 per- cent in 2001 versus double that a year ago. With consumers keep- ing their wallets closed, orders for steel-dominated products such as new cars and appliances are flattening.

For instance. in 2000's fourth auarter. sales of domestic-built vehicles declined each month and, a; year's end, were nearly 20 per- cent under the pace at the end of the previous year. Auto sales cur- rently are at the slowest level since late 1998, and the Big Three American ca~~nakers each have shuttered plants to get inventories in line with sales expectations. Do~nestic auto sales are expected to be down 6 percent in 200 1, with North American producers running at just 80 percent of capacity.

At the same time, business expenditures are weakening because the industrial sector is struggling as factory output slides. Manu- facturing activity is at the lowest level since 1991, reposts the Nation- al Association of Purchasing Management (Washington), and order books remain weak.

Giving some upward steel-market push, however, is the sizable number of large-scale infrastructure projects currently underway. This especially is true in the highway construction sector, where a huge amount of federal dollars now are being spent locally to upgrade roads and bridges, and in the oil field market, in which steel demand for building new gas and oil pipelines, drilling rigs and other goods is rising.

Will consolidation help salve the domestic industry's wounds?

The world steel industry is extremely fragmented. For example, the world's largest producer has only a 3 percent share of total global

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production, and the largest producer in the U.S. represents only 1.4 percent of the domestic market.

Some industry analysts are urging steel producers to consolidate as a way to take out additional excess capacity and to successfully shutter marginal operations.

Major hurdles, however, must be overcome for consolidation to be common. As noted bv Paul Wilhelm. resident of U.S. Steel (Pitts- , . burgh), many steel companies come with expensive "legacies," such as the future costs of site cleanup and retirement benefits to steel- workers. Also, the U.S. steel industry already has spent considerable amounts of money ~node~llizing existing plants and abandoning anti- quated facilities. Domestic elnploy~nent has fallen from about 124,500 in 1990 to just 81,000 today. Thus, few opportunities may be avail- able to attain economies of scale and to lower costs through consol- idation.

How fast will Chinese scrap demand surge?

Shipments of ferrous scrap to Chinese mills from U.S. suppliers grew about 140 percent last year, to approximately 900,000 tons.

Demand again will rise in 2001, when an expected 26.4 million tons of scrap will be consumed by Chinese mills, of which nearly 20 percent will be imports, according to the State Administration of Met- allurgical Industry (Beijing).

Scrap demand in China is booming for two reasons. The country has one of the world's fastest-rising economies, at 8 percent annual- ly, and steel is needed in building massive new infrastructure proj- ects, such as dams, roads, bridges and harbors. At the same time, the nation's steel producers are moving away from operating antiquated virgin steel production mills to making recycled steel in electric-arc furnaces. RR

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Cold Canyon Landfill (Sun is Obispo, California) moves green waste from its Peterson grinder through a Wildcat trommel prior to cornpostirzg. \ Increasing feedstock, increasing sales

Canyon Landfill (San Luis nia) to expand its ancillary composting busi- ness. Founded in 1995, this privately held company uses windrow composting to divert green waste and scrap wood from its land- fill. Profits from green waste processing may be small, but the real reward comes from saving significant air space within the landfill.

Cold Canyon currently accepts between 11,000 to 12,000 tons of green waste annu- ally. About 85 percent of this incoming feed- stock is from the curbside collection of yard trimmings in six area communities that have a combined population of about 30,000 peo- ple. The remainder is delivered by self- haulers, such as residents and professional landscapers. The facility uses a two-acr / site to receive incoming materials and as another five acres devoted to windrow om- posting. J

screens: a 2-inch-minus for the initial pre- screening, a 34-inch-minus for compost, and a %-inch-minus for mulch or ground cover.

Contaminants are not a major worry, amounting to perhaps 2 percent of incom- ing green waste. Since most of the feedstock comes from curbside collection, the initial screening eliminates any trash that may

accompany the yard trimmings. The organ- ic material then is placed in windrows, watered and monitored for temperature over

Cold Canyon offers only bulk sales, arnount- ing to about 10,000 cubic yards of compost per year.

The overages from the compost screen- ing then are re-screened to a %-inch-minus to produce a walk-on wood product. This type of mulch (about 2,400 cubic yards per year) is used by landscape suppliers as well as local organic berry growers. Any remain- ing product that is not suitable for sale as either compost or mulch is used as cover for the landfill.

Cold Canyon also diverts wood products, such as untreated and unpainted lumber and pallets, from disposal. Contractors typical- ly drop off this feedstock for a tipping fee, although the company does have some industrial roll-off containers used to collect

,,,"

pallets. ~his,nl&erial (about 700 tons annu- ally) i3gr'ound separately and shipped to a Me dota, California plant to be used as co- 7 ,generation fuel.

Rizzoli reports that markets have been good, with demand occasionally exceeding supply. Feedstocks, too, have evolved in response to the unique local agriculture.

"Because of the area vineyards," he says, "I have been mixing our compost with a bal- anced ratio of grape pumice, a byproduct of grape pressing that includes grape skins, stems and things like that. It's a seasonal product that is available in the late fall. This year, we accepted about 1,400 tons."

Cold Canyon has a unique opportunity to expand its windrow area, however, because more wineries have expressed interest in this disposal option. The landfill charges a reduced tipping fee because the grape pumice provides a natural source of nitro- gen material to offset the carbon-rich woody

opportunity for us thaioffers a significant savings." 's,,

To recommend candidates for inclusion in this department, contact Tim Krause at (503) 233- 1305 or editor@resource-recyc1ing.com.

~esource Recycling February 2001