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Outlook For Scrap Metals Recycling Market

Despite all the challenges, the global economy has recovered from the difficulties faced in 2020 and most recycling companies witnessed better performance in 2021. The outlook for 2022 seems bullish, say industry experts as they share invaluable insights on the significant developments, key concerns as well as opportunities in the metals recycling market.

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In-Depth Features
February 28 2022
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The metals recycling sector had performed well in 2021 with robust growth reported post-Covid alongside overall industry sectors, while growth has been tremendous in ferrous and nonferrous scrap, be it from sanjay mehtacollection of scrap at yard level to production at factories or imports from overseas countries, said Sanjay Mehta, President, MRAI and Director, MTC Group. “The recycling sector has got tremendous opportunities in terms of higher tonnage on trading, production, collection of materials, etc. thus good growth in topline as well as bottom line in all the sectors. Pre-Covid and post-Covid all metal scrap prime metals prices increased by 40 percent to 90 percent in value, so the capital requirements have gone up tremendously.”

Overall, the metals recycling industry performed well last year,

ibrahim Abouraespecially after a slow moving and a hard hit 2020 when the pandemic started, said Ibrahim Aboura, Manager, Aboura Metals and Board Member, BIR Non-Ferrous Metals Division Middle East. “Most industries suffered during that year and it was inevitable that global economic recovery would pick up in 2021. I think we as well as all the scrap metals recyclers globally had performed well last year as demand was high across the map for all metals; we saw economic recovery for all industrial countries where most had to pick up on the slow 2020,” he added.

“Considering the number of tough balls thrown our way - I think the industry in general performed very well,” said Natallia Zholud, Senior Trader, Head of Business Development, TRM Group; BIR Nonferrous Board Member. There were changes in export and import policies, LME volatility, the extreme backwardation, semiconductor shortage, disrupted supply chains, energy prices, shipping issues. And despite all that it has been quite a good year for the recycling industry, “with strong industrial demand, full order books and better than expected end-year profits,” she noted.

 The CIS region has been less affected on some of the common industry issues like LME volatility and shipping container shortage, although it was hit hard by the implementation of export tariff in Russia in August which led to less recycling, Zholud commented. “Yet business found its way - recyclers tend to be very flexible.”

susie burrage

 Susie Burrage, Managing Director of Recycled Products Ltd and President of the British Metals Recycling Association, said, “Despite navigating our way out of a pandemic and the regulatory tsunami many regions are facing, in my view, 2021 was a positive year for the metals recycling sector.” A great indicator of this, she said, was the exceptional number of attendees at global recycling events last autumn. “My local association the British Metals Recycling Association (BMRA) held a full capacity dinner in London, the Bureau of Middle East Recycling (BMR) conference held in Dubai was a grand success and the Bureau of International Recycling (BIR) convention in Brussels had to restrict numbers with many other participants subsequently joining virtually. As one of the judges of the Middle East Waste and Recycling Awards, the calibre of entries was also something to be celebrated in 2021.”

The buoyant LME prices, the global recycling industry being recognised as an essential industry during the pandemic and the gradual easing of Covid-19 restrictions, all enabled the recycling sector to flourish in these difficult times, said Burrage, adding that the biggest headaches were caused by labour shortages due to quarantine laws, increasing logistic costs and diminishing availability of transportation for the sector.

“As my company, Recycled Products Limited predominately recycles metals, the high LME prices and good profit margins have meant we have concluded 2021 in healthy financial shape. We are reinvesting our profits in updating our processing machinery and equipment. Our inhouse European haulage provision has helped us negate transportation difficulties those who rely on external providers have been experiencing,” she remarked.

Challenges and trade dynamics

 In Sanjay Mehta’s view, the main hurdles that deter the growth of the industry are, China’s trade relations with other countries and Russia, Ukraine matters that disturb the trade and industry a little bit as well. There are a few hurdles which definitely need to be addressed like higher logistics costs in India which is 6-8 per cent higher than other countries. “I understand our current Government is working hard to address these matters as various modes of transport systems have been developed by the current government, and we are still putting in all our efforts in this regard.” Import duty on non-ferrous scrap is also a hurdle, due to which it does not provide a free hand to ensure a level playing field compared to other parts of the world; and MRAI has requested the Government to remove the duty, which would bring great relief to the industry, he noted.

The major problem even at present is Covid and the continuous emergence of new variants that always remain an unknown factor, and how severe they are and how much effect they would have, and the damage that will result on global trade, opined Aboura. “In 2021 there were less lock downs and movements of material as we all adapted in a way and learnt how to live in this pandemic, but as it remains around us and no near end for it, it remains a major challenge.”

The global trade and particularly our industry had suffered from another major problem, which is logistics and shipping, “which got to be a nightmare at some point,” he remarked, adding that inflation is also weighing heavily on global markets and trading. “All of these challenges are related to Covid and the lockdowns and shortages we had in 2020, we are still seeing their drastic effects on global trade.”

Changes to legislation and increasing levels of regulations will continue to be the biggest threat to businesses in the coming years, stressed Burrage. “Unfortunately, metal recycling is often inhibited by the historical focus on policies for hazardous waste management rather than on policies that centre on the recovery of metals as a resource. Waste classification within the UK is a hot topic. Studies are currently being undertaken by the BMRA to challenge the Environment Agency’s stance that shredder residue should be classified as hazardous waste.”

In her view, the EU’s newly proposed amendments to its waste shipment regulations restricting exports to OECD and non-OECD countries, “if adopted, will impinge heavily on global free trade within our sector.” Currently, within Europe there is no differentiation between untreated waste and processed and recovered raw materials from recycling.

“Unfortunately, EU policy makers despite our best efforts are still showing reluctance to make this distinction. Export tariffs being implemented around the globe such as the recent introduction of an export tax on scrap metal in South Africa (10 per cent on copper, 10 percent on brass and 15 per cent on aluminium) are another hurdle to be monitored and overcome. Fortunately, in India, representations from primary producers of aluminium and copper to increase import duties on metal scrap in the recent budget were rejected,” she commented.

An unfortunate consequence of high metal prices is that utilities, infrastructure, and metal processors themselves all become targets for metal thieves, she emphasised. “As well as increasing security, metal merchants will have to ensure they conduct strict due diligence checks to prevent themselves from inadvertently buying and subsequently being prosecuted for handling stolen material.”

New standards being set on imports by countries such as China and more recently Malaysia’s “Guidelines for Importation and Inspection of Metal Scrap” will also have consequences for the trade, Burrage said, also asserting that soaring energy costs are also going to have an impact on profit margins in 2022.

The key factors that will change the trade dynamics are total growth post-Covid due to the various stimulus packages extended by the governments worldwide right from common man to the trade and industry, and it has given great results, said Mehta. And this will continue in the current year due to which good demand for steel and other metals from the Infrastructure and Automobile sectors will arise, “and I can see 2022 is also going to be good for the metal scrap trade and industry in India. Good demand is the key factor for growth.”

nataliaIn Natallia’s opinion, factors include performance of the major economies, especially Chinese economy post Olympics and new year holidays; fiscal regulations, as record high inflation levels will have to be addressed by governments; supply chain bottlenecks; geopolitical tensions; Covid, as the pandemic is still very much here; and government regulations relating to international trade. “In 2021 we have observed how detrimental the state policies can be if they are implemented without a strong dialogue with the industry, and understood how important it is to make sure the voices of the recycling sector are heard by the policy makers.”

 So, in what way has freight affected the business and industry overall?

“As mentioned, the shipping crisis that began in early 2021 where we started realising how seriously it will affect the flow of material to certain destinations is still there with a bit of softening, but still far away from the old normal range when we talk about freight,” Aboura underscored. Freight skyrocketed from the region to destinations going west bound to Europe or the Americas, and the main issue there was not just the freight, but container availability and vessels disrupted schedules, he stated. “We had difficulties shipping to Asian destinations as well.”

Freight has played a significant role worldwide as freight rates from one region to the other has drastically changed, said Rajesh Agarwal, Managing Director, RKG International. Freight costs have skyrocketed on certain routes like Japan to India or Port Qasim, which are major markets; shipping costs from Europe has more than doubled; similarly, from the Middle East to India it has increased tremendously, he declared. “Earlier it was almost zero freight but now it has increased steeply,” he noted, adding that freight has significantly impacted the sector.

Even assuming the higher LME levels for more or less the entire LME group two or three times higher freights coupled with growing energy bills are a significant pressure on the costs, Natallia highlighted. “But let alone the invoices, the lack of containers and delays in deliveries affects the trade a lot more,” she added.

rajesh agarwal

As a consequence of Covid-19 lockdowns and restrictions, consumers spent their money on goods rather than services. These increased levels of online shopping placed unprecedented demand on supply chains including containerised trade flows, said Burrage. This demand was met with supply-side capacity constraints including: limited vessel space, container shortages, labour shortages, continued on and off Covid-19 restrictions across port regions and congestion at ports, all impacting on the recycling industry, she explained.

 “The difference between demand and supply then led to record container freight rates on practically all container trade routes. The continuing global shortage of shipping containers is concerning for all recycling businesses as they are forced to wait every day for containers. The practice of traders prebooking shipping slots to negate the shortage of containers is becoming riskier as certain shipping lines are now issuing penalties against unused bookings.” Burrage said some traders within the UK, have opted to sell to Europe and utilise road transportation instead; road transportation costs across the UK and the rest of Europe have increased too, as there is a shortage of qualified heavy goods vehicle drivers, which has led to higher wage demands, not to mention the higher diesel costs. “Accordingly, increased freight rates are impacting all our financial bottom lines.”

 Outlook for the metals recycling market in 2022

Overall, the outlook for the metals recycling market in 2022 seems bullish as Investment in India’s domestic steel recycling sector is poised to accelerate in 2022 following the recent announcement of the country’s new National Automobile Scrappage policy, said Mehta. The ELV recycling policy will drive and be supported by the establishment of numerous new recycling centres. “This is in line with its wider National Steel Scrap Recycling policy goal, which envisages an initial buildout of 70 large recycling centres to process the 7mn tons ferrous scrap deficit the country currently imports. This number will then rise to 700 recycling centres to process the 70mn80mn t/yr of ferrous scrap the government estimates it will need to hit its 2030 target of producing 300mn t/yr of steel by 2030,” he underscored. Overall, he said, good measures taken by the government followed by heavy capital expenditure announcement in the current Budget will boost infrastructural projects, which will increase the metals demand in the country.

Aboura said, it looks like this year will be a continuation of 2021 performance for the industry. “Demand is high, there is a shortage of material to some destinations, a continuous increase of prices and LME is still running in backwardation. Shipping is also a key factor of how the trade will move and unfold over the coming months, and most importantly how Covid and the pandemic will unfold and present itself this year.”

In general, Natallia expects more moderate growth this year compared to 2021. China with its huge demand for recyclables is looking at more balanced growth this year, so coupled with the real estate sector situation it is likely to be less aggressive on the market, while most governments will have to address the extreme inflation by stronger fiscal policies, she elaborated. However, the market temperature is likely to remain supported by low stocks, demand from other major markets like India, and uncertainties brought by Covid and geopolitical tensions, she stated.

“If there’s one thing we have learned over the past 2 years, it is how quickly a perfectly laid out plan can be destroyed in days. While we anticipate a surplus in nickel due to NPI expansions in Indonesia and support to the aluminium industry provided by easing of semiconductor shortage the outlook is clouded by the possible outcomes of how the conflict over Ukraine will be resolved,” said Natallia.

Agarwal expects this to be a good year for the recycling sector. “There is a gradual easing of Covid restrictions, and all are eager to get down to business. When things improve in all areas, automatically the demand will increase. In terms of profitability, everyone has shown in their balance sheets at least 50 per cent increase or more in revenues.”

As the global economy rebounds from the pandemic years, and we are learning to live with new Covid variants, the International Monetary Fund is projecting global GDP growth near to 5 percent in 2022. “This spike in inflation is now the most pressing challenge facing governments around the world. Thus, central banks are starting to tighten fiscal policies through raising interest rates in an attempt to curb the inflationary rise and bring economic stability. These measures effect currency exchange rates which in turn impact commodity and base metal prices on the LME,” said Susie Burrage.

 “In recent months copper, aluminium, zinc and nickel have reached decade highs on the LME and we have witnessed extreme fluctuations in their prices. Afternoon copper price movements of US$ 200-300 have not been unusual and look set to continue. This hyper volatile market is certainly not for the faint hearted! As high LME prices continue into 2022, we may observe stock being liquidated more quickly and sold in lower quantities to improve cash-flow.” Furthermore, she said, credit insurance which is becoming harder to obtain, with reassessments sometimes leading to limits being lowered, may necessitate trading at lower volumes if the trader wishes the whole parcel to be covered by credit insurance. “As the transition to a greener more sustainable world gathers momentum, hopefully our industry will be able reap some rewards,” Burrage remarked.

New cars and vans powered wholly by petrol and diesel will not be sold in the UK from 2030. This is good news for the recycling sector as approx 80kgs of copper is needed for an electric vehicle compared to an average of 20kg of copper in a combustion engine. “Our Prime Minister, Boris Johnson has also pledged to produce enough offshore wind to power every home in the UK, quadrupling how much it produces to 40 gigawatts by 2030, and supporting up to 60,000 jobs. Again, good news for us as 15 tonnes of copper is needed per megawatt of installed capacity.”

Also on February 1, India’s annual budget statement emphasised “climate change”, “circular economy” and “clean green energy “goals. “Overall, sentiment remains positive for 2022. The current high demand looks set to remain, and there is optimism that as a consequence prices will remain buoyant,” Burrage concluded.