Examining the Scrap Metal Industry with ISRI’s Joe Pickard
June 2, 2014
JOHN SHEGERIAN: Welcome to another edition of Green is Good. I’m John Shegerian, your host, and today, I’ve got Joe Pickard on the line. He’s the Chief Economist and Director of Commodities from ISRI, the great Institute of Scrap and Recycling. Welcome to Green is Good, Joe. JOE PICKARD: John, thanks for having me, great to be here. JOHN SHEGERIAN: Happy to have you and before we get talking about all the great work you’re doing at ISRI, can you share first the Joe Pickard story? Talk about how you even got to this position. JOE PICKARD: Sure so I’ve been with ISRI about three-and-a-half years now. I’ve always been interested in recycling. I’m an economist by training and a lot of the focus of my graduate studies was on international trade and commodities so fresh out of graduate school I got a job as a research analyst for a consulting firm in the Washington, DC, area and that was focused mostly on agricultural commodities but a lot of the work that you do in terms of commodities analysis is transferrable to different commodity groups so right after working for the consulting firm in the DC area, we actually moved overseas to Lisbon, Portugal where I was the economist for the International Copper Study Group in Lisbon. I was there for about four years and a lot of the focus on my research there was not just on primary copper but on copper scrap, scrap recycling statistics globally in terms of how much copper gets melted at refineries and smelters for reuse and then the opportunity to move to ISRI came along, which was a fantastic opportunity for me in terms of broadening the scope of commodities that it covered but I really got to delve into recycling a little bit more, which has always been a personal interest of mine. Prior to graduate school, I did a stint briefly at the environment program at the Pew Charitable Trust so it’s sustainable development, recycling, the environment, and how it relates to the larger economy has always been an interest of mine. JOHN SHEGERIAN: Got it. Joe, the Institute of Scrap and Recycling Industry has been around a long time. Give us some scope. How big is the U.S. scrap recycling industry and what’s its economic impact? You’ve got a fascinating position, not only at ISRI but in terms of, as you just shared, your background as an economist and also a commodity expert. You’re at a very fascinating crossroads in terms of your knowledge and also on the platform that the Institute of Scrap Recycling Industries has given you so how big is the entire industry in terms of its economic impact? JOE PICKARD: Yeah, well thanks for that and maybe just by way of background, I can give you a little bit more of what we do here on the economics and commodities side and how that fits into the big picture because it is a big industry and a growing industry. Its annual factor is about $90 billion, with a B, each year. The industry in the U.S. alone processes about 135 million metric tons annually. What we do here at ISRI from the economic side is we try to keep our members informed about what’s going on with the economy and what’s going on in commodity markets, which have such a big impact on the bottom line of the scrap recycling businesses but we also try to spread the word to external audiences about all the great benefits associated with the scrap recycling industry because it is an extremely innovative industry, as you know, John. It’s large. As I said, it’s about $90 billion per year. If you look at just the number of jobs that the industry creates, We had a study commissioned last year that showed we had about 138,000 people directly employed by the scrap recycling industry. If you look a little bit further, including the jobs that are supported by suppliers and other jobs indirectly supported by the industry, that number increases to over 460,000 jobs that are supported by the scrap recycling industry alone in the U.S. so it’s an extremely innovative industry with a large economic impact. It also has great environmental impact, as you know, using recycled goods has tremendous benefit not just for the economy but for the environment as well. If you look at particular commodities like aluminum, for example, the energy savings using recycled material versus prime can be 90% or more so it’s great for the economy and it’s great for the environment as well. JOHN SHEGERIAN: You know, Joe, you mentioned aluminum. What are the other key scrap commodities that are processed out of the scrap recycling industry? JOE PICKARD: Sure and just to go back quickly, ISRI members are going to process everything along the commodity chain, not just metals including ferrous and nonferrous metals, but also paper, plastics, electronics, rubber and tire, and ISRI represents about 1,700 member companies and 21 chapters across the country but we also have a growing number of international members as well. JOHN SHEGERIAN: And it’s the largest organization of its kind in the world, correct? JOE PICKARD: That’s correct, yeah, and so some of the biggest commodities that our members process, by volume, include ferrous, which is iron and metal. That’s typically around 75 million metric tons any given year recovered. Paper is also a very big commodity by volume. That’s upwards of 50 million tons per year but we’re also processing copper and aluminum and all of the nonferrous metals. We’re processing electronic scrap. Figures from the ITC show that annually we’re processing over 4 million metric tons of electronic scrap alone here in the U.S., in addition to tire and rubber, textiles, and basically the whole list of recyclable commodities. JOHN SHEGERIAN: Got it. If our listeners just joined us, we’ve got Joe Pickard on. He’s the Chief Economist and Director of Commodities at ISRI. If you want to follow along, I’m on their site right now. It’s a wonderful site. It’s www.ISRI.org. Truth in advertising, also my company, Electronic Recyclers International, has been and is a proud member of ISRI, so I just want to get that out there as well. Joe, one of the biggest things on the news every day, whether you watch Bloomberg, CNBC or any other great news agency around the world, is the commodity prices. Since you’re an economist and also a commodity expert, share with our audience what are the factors that help determine scrap prices? JOE PICKARD: Sure, and for most of the scrap commodities, the scrap prices are going to be following what goes on with the primary prices, so for example on copper, copper scrap prices very closely track refined copper prices and just as a disclaimer, I can’t talk about what prices are going to do in the future but I can certainly talk about what some of the determinants are of pricing so it’s important to note, I think, that the scrap prices tend to follow the primary prices so it’s not that the scrap industry is really setting the prices. We tend to be price takers because the prices for a lot of these commodities are set elsewhere. Basically, it’s a function of supply and demand, to be certain. We’ve seen a big commodity boom through 2008, prior to the recession and we’ve seen supply try to catch up to that increase in demand and a big part of the demand picture has been China to be sure. They’re a huge consumer of commodities. As they expand their infrastructure, as they promote urbanization of their population, there’s been a real need to invest in infrastructure and build things, roads, the whole nine yards, in China and with that spending come an increased demand for commodities to make the bridges, to make the copper wiring, to make that expansion possible so on copper alone, I’ll stick with that example, China’s going to account for about 40% of global consumption so as China goes, so go a lot of the commodities. Also, some of the determinants on the pricing certainly we’ve seen investment flows coming in and out of commodities and that can certainly have an impact, especially in the short term, on where commodity prices go and as I indicated, scrap prices tend to indicate that. It’s a balance between supply and demand. We’ve seen some commodities move into market surpluses as production has caught up with demand and that has had its weight on pricing for a number of different commodities. We’ve seen sharp increases in production in China, for example. China’s expected to produce about 800 million tons of steel this year, which is just a remarkable amount of steel, and as markets move into surplus conditions where supply outstrips demand, that tends to weigh on prices. JOHN SHEGERIAN: Joe, you mentioned China and everyone hears about China a lot in terms of consumption. Where, besides China, is most of the scrap processed in the U.S. consumed? If it’s going to China, as you say 40% of it, where is the rest going and how much is staying domestically speaking, even though we’ve lost so many. I believe the number is 70,000 manufacturing facilities have closed down since the year 2000 in the United States. Is there still some domestic consumption of our scrap? JOE PICKARD: Yeah, absolutely and I think that we’ve seen a number of factors that are going to help out U.S. manufacturing, making manufacturing in the U.S. more competitive. Certainly, we’ve got an advantage in terms of energy availability, with the boom of oil and gas production here in the U.S. That’s creating efficiencies here that make it a competitive place. As we’ve seen labor costs escalate overseas, that makes U.S. labor markets relatively more competitive as well so I think manufacturing has been a tough ride in the last couple of decades. That’s true but we’re seeing some real advantages come through and so most of the scrap, actually, that gets processed here in the United States stays in the United States. It’s about two-thirds, one-third, two-thirds of the scrap overall gets processed and consumed here and then about a third of it, we’re going to ship overseas. JOHN SHEGERIAN: Gotcha and of that third, China is the biggest consumer? JOE PICKARD: China is the biggest consumer, yeah, so of that third, about a third of that, which would be 10% of the total, goes to China but it varies a little bit by commodity actually. Most people when they hear that, they would expect that China would be our largest overseas consumer of steel, ferrous scrap, but that’s not true. Actually, Turkey tends to be the biggest overseas consumer of ferrous scrap but for most other commodities, it’s true. On copper, for example, over 80% of our copper scrap exports go to China. Most of the paper and plastic scrap exports go to China as well. On the electronic scrap, the figure from the ITC study show that China actually isn’t the most important overseas market but it’s in the top five. JOHN SHEGERIAN: Interesting. When it comes to global demand for the U.S. scrap industry, are the other BRIC nations involved, such as Brazil, Russia, and India, besides China or is this mostly a China story now and will it evolve to be a bigger and broader story in years to come? JOE PICKARD: I think that’s right. I think the BRIC nations are going to become increasingly important outside of China. Right now, we’re not shipping a whole lot to Russia or Brazil but I think as the Brazilian economy, especially, grows, and most experts are expecting Brazilian growth to pick up, that’s probably going to lead to increased demand for scrap. India certainly is an important overseas market for us as well. Our NAFTA partners are also big consumers of U.S. scrap. We send a lot to Canada and to Mexico but we’re sending our scrap all around the world to about 160 countries worldwide so China certainly has an important role to play in that but it’s really a global marketplace. JOHN SHEGERIAN: Earlier, you mentioned energy and I don’t know if our listeners actually understand that nexus between recycling metals and scrap and the massive energy savings that’s involved. Can you walk us through, starting with aluminum again, Joe, the huge energy savings when you recycle the commodities that your great organization, ISRI, covers in terms of the scrap and recycling industry? Show how recycling is not only good in terms of creating jobs and boosting the economy here in the United States and beyond but it also creates a massive energy savings as opposed to mining all these metals from virgin ore below the ground, which is also limited and is also risky. JOE PICKARD: Absolutely, yeah, so if you think about producing virgin materials, like aluminum, they’re extremely energy intensive. To get that ore out of the ground, then to process it, to smelt it, to refine it takes a tremendous amount of energy, especially for aluminum but for the other commodities as well and with that comes emissions, of course. It comes with other environmental costs so the environmental benefits of using recycled materials really are quite large, especially in terms of the energy savings so as I indicated before, that could be over 90% for aluminum but if you look at the other commodities, like plastic, that could be up to 87% energy savings, around 90% for copper. For paper, it’s over two-thirds. It’s 68% energy savings and for steel it’s about 56% less energy required to produce new steel from recycled materials as opposed to producing it from virgin ore or new steel production so it’s a tremendous amount of energy savings and environmental benefit for using the recycled materials and for the metals in particular, they can be recycled over and over again so it’s literally an infinite number of times that copper and the other metals can be reused and recycled. JOHN SHEGERIAN: That’s such a great story. It’s a story that doesn’t get that much cover so I’m so glad you covered that, the great energy story to recycling our scrap and recycling all our commodities. Joe, we got about three minutes left. Can you cover two key questions, the evolution of the scrap industry over the last decade or so? Can you share a little bit what big changes that have occurred? And also, before we end today, I want you to give a little visibility on the future of the global scrap marketplace going forward. JOE PICKARD: Sure, so it really has been an amazing evolution for the industry over time. When you think a century ago, it was essentially peddlers going from door to door and trying to collect and sell household goods or farm equipment. Today, the recycling industry is extremely capital intensive. Scrapyards today, it’s a vital part of the manufacturing chain and increasingly capital intensive, by which I mean we’re using machinery and equipment to process the scrap. If you look at just the number of shredders in the United States alone, in the 1970s, we were at 160 shredders nationwide and today, that number is over 350 shredders operating today so it’s a much more capital intensive industry. As I’ve touched on before, it’s certainly a global industry today. We’re looking at over 200 million metric tons of scrap that’s typically being exported around the world on any given year so in addition to China, it’s really become a global marketplace. If we look at the industry within the U.S., we’ve seen it become an increasingly competitive marketplace. It’s highly competitive, which means that our industry members really need to evolve over time. We just need some industry innovation and consolidation and I think, looking forward, a lot of people are expecting probably some additional consolidation within the industry just because it has become such a competitive marketplace, which has put some pressure on profit margins within the industry and I think a lot of folks are expecting that integration and consolidation to continue and I think on the global marketplace, I don’t expect that to change. I think there are a variety of opinions on whether China will remain the biggest consumer of commodities as growth starts to slow there on the import side but I think China is not going away anytime soon. It’s going to continue to play a really important part in the global commodity marketplace and for scrap commodities in particular. JOHN SHEGERIAN: That’s so great, and Joe, please feel free to come back at any time. We’d love to hear more about this and for our listeners out there who want to learn more about the Institute of Scrap Recycling Industries, please go to www.ISRI.org. It’s a great organization. Learn more about it if you want. I urge you to join ISRI. I’m a member. My company has been a member for years and we get a lot out of it and ISRI is going to continue to play an important role in the domestic and global scrap recycling industry for many years to come. Thank you, Joe, for being a sustainability scrap superstar. You are truly living proof that green is good.