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Low scrap demand a major concern

COVID-19 has been devastating but some light can now be seen at the end of the tunnel, the world recycling organisation says in its latest global markets update.

The pandemic has affected commodity markets in a variety of ways. Company operations have been disrupted by isolated outbreaks and government-mandated shutdowns, keeping demand low for many commodities and that is ‘likely to remain so in the near term’, BIR stresses.

Shutdowns and temporary stoppages could lead to an overall industry production loss as high as 40%, says BIR. Depending on the strength of the recovery, market shocks could mean the industry losing US$ 200 billion (EUR 277 billion) in earnings owing to falling sales in, for example, the aerospace and automotive sectors. The impact has been felt by metal producers and hence by recyclers worldwide.

Secondary aluminium has been severely affected by the lack of demand for ingots from these two industries. Demand has been equally low, if not worse, for nickel and molybdenum, and has been dented for high temperature alloys including titanium. Stalled car production has also hit demand for chrome steel and ferro-titanium. Other recycling activities – such as with paper and cardboard, plastics and textiles – are suffering as a result of oversupply and a lack of demand, not least because consumer confidence is very low.

The pandemic is already inflicting a dramatic economic cost on the Middle East, where negative demand and supply shocks are coupled with the collapse in oil prices. Major oil-producing countries have dug into their reserves to make up for budget deficits during the unprecedented price crash.

Slight signs of hope

The light at the end of the tunnel is being seen as the gradual lifting of the major lockdown restrictions. Major oil-producing countries have issued additional stimulus funding packages to the worst affected sectors of the economy. ‘Most recycling facilities are back to relative normality but are struggling with lower volumes and margins,’ says BIR. ‘Business in the scrap sector has started to pick up again but volumes are 50% below the previous average, one source has reported.’

Step by step in UAE 

The revival of the construction sector and a resumption of halted infrastructure projects bode well for scrap generation in the Middle East. Major airports have announced resumptions for repatriation and receiving tourists, confirmed by Dubai for 7 July onwards. Federal discussions are under way to review the reopening of schools for the 2020-21 academic year as well as raising the proportion of those working in offices from 30% to 50%.

In Bahrain, most government and private sector employees are continuing to work from home. Industrial and commercial businesses are operational and slowly increasing their activities with strict compliance to the rules. All businesses have been affected by this crisis, with the closure of some small companies leading to expatriate employees losing their jobs.

The scrap sector in Bahrain is said to be running at around 30% efficiency with hopes of a significant improvement by the end of this year.

Indian headaches not over yet

A major concern for recyclers in many parts of the world has been the huge congestion caused by thousands of containers lying in Indian ports despite free extensions by some of the major shipping lines. More disturbing is the fact that some buyers have abandoned containers, seeking deferment of contractual terms, unjustifiable discounts or even cancellation of contracts. This has put major worldwide suppliers in a ‘Catch-22’ situation and has been described as an unwelcome echo of the 2008 financial crisis. Indeed, it is acknowledged from India that many shippers have lost large amounts of money as a result of buyers leaving containers or asking for discounts.

Businesses are working in India but a return to full operation is seen as unlikely in the near term. The number of Covid-19 infections is increasing rapidly, especially in major cities, and creating fear among buyers. Factories are working at around 50% of capacity and huge problems are surrounding labour and finance rotation. Some businesses are said to be working at only 20-30% of the norm, and so are making a loss either way.

German waterways drying up

Step by step, scrap activities are reviving in Germany. With the resumption of the automotive industry, supply noticeably improved in May and June. Transport within Germany is functioning but there is an expectation of lower water levels for several rivers owing to the dry period in recent weeks so scrap movements via inland waterways might suffer as a result.

The number of daily Covid-19-related deaths is slowly decreasing in the UK and lockdown restrictions are gradually being lifted. Most metals recycling companies are back at work but volumes are typically 50% down on this time last year despite the improvement in prices. Many companies still have staff furloughed. The fear is that, once this government-funded support is withdrawn in October, the recycling sector will be among those making redundancies.

Metal prices on the rise

In the metals recycling sector, a return to frontline business is happening much more quickly than expected. For ferrous scrap, demand from Turkey is supporting sales while non-ferrous metals – in particular copper – are sought after in the context of rising prices. But secondary aluminium has been severely affected by a lack of ingot demand for the automotive industry.

Back to work in the US

Most US states are allowing at least the partial reopening of non-essential retail, manufacturing and offices, tied to strict health and safety requirements for businesses with in-person operations. Stricter local orders may remain in place by city or county, and some states have ordered reopenings to be conducted on a regional basis.

On the whole in the USA, business is returning slowly. However, the easing of restrictions has been complicated by more reported cases of Covid-19 across a number of states.

Precautions remain strict across Asia 

There have been more than 200 confirmed Covid-19 cases in China this past week. All businesses are open but masks, temperature checks and social distancing are required almost everywhere. Inter-province travel is allowed but in-bound international travellers must submit to 14 days of quarantine. At the time of writing, details are still awaited concerning China’s new import procedure covering reclassified ‘recycled materials’.

Hong Kong has recovered fairly well following the government’s decisive lockdown quarantine and social-distancing policies in the early stages; the discipline of the Hong Kong people has led to some of the lowest fatality rates. Most commercial activities have returned to normal, including metals recyclers, and demand in China appears to have regained much of its momentum in the secondary metals market.

Singapore entered the second phase of a lockdown easing process on 19 June, with no timeline set for phase three. Most economic activities have been allowed to reopen so long as safe distancing is observed, non-essential staff continue to work from home and the number of business/social visitors does not exceed five at any time. International travel is still limited to repatriation.

Foreign workers crucial to Singapore’s manufacturing and service economies are being permitted, albeit on a case-to-case basis according to the critical nature of their job and skill-sets. They must also complete 14 days of quarantine at the company’s expense. As a result, some workers should begin to enter the workplace around the second week of July.

Production scrap low 

Manufacturing and the generation of new production scrap are very slow and limited and no real pick-up is envisaged until the end of July. Two key sectors for the metals business – oil/gas and aerospace – are facing a very difficult downturns, impacting not only scrap generation but also demand for nickel and moly alloy scrap and high temperature alloy scrap, including titanium. The automotive sector has been hard hit, too, undermining demand for chrome steel and even ferro-titanium. The outlook for tool steel and high speed steel is linked to the pace of manufacturing revival.

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