Keeping the flame: aluminum scrap dealers and consumers keep their facilities charged up despite a tepid economy. (Cover Story).

If the adage "slow and steady wins the race" holds true, the aluminum scrap market will be a winner in 2002. Material is moving over the scales -- but slowly. The market will have some fluctuation -- but within a fairly narrow band. Demand is there -- but nothing to write home about.

In short, 2002 promises to be a satisfying year for aluminum scrap but not one that will be remembered either as wildly successful or extremely painful.

Most of the people on both the supply and the demand side would echo the remark of Brian Carlone, non-ferrous manager at Annaco Inc., Akron, Ohio: "We're like the turtle -- slow, but steady."

SLOW RIDE

"Things are slow. We're down a bit -- say maybe 15 percent," says Randy Castriota, president of Castriota Metals and Recycling, Pittsburgh.

Castriota deals with a lot of smaller companies and peddlers and does not foresee a lot of change in volume moved over the next six to 12 months. "I'm optimistic," he says, but adds that realistically there is no overriding trend that he can see on the horizon that would change his mind.

Carlone would put the figure in his area at about 20 percent off comparable years. "Receivables are slow," he says. "It is harder to move quantities to the de-ox people." This is due to lower demand in the de-ox market, which sells to the steel industry.

Yet overall, things seem to be hanging tough. "Demand did not fall off as badly in the fourth quarter (of 2001) as some expected," notes Arnold L. Fish, partner in the brokerage of Lakeshore Metal Trading, Evanston, Ill. He sees brighter prospects into the spring and summer. "Should it jump up, that would be the norm. But right now it is very reserved."

Still, he did not observe the usual stockpiling that occurs around the New Year when buyers take in material hoping for the typical three or four-cent increase in January. "I don't know anybody who did that this year. Nobody loaded up," he says.

A Midwest consumer, while noting that their smelter was getting what it needed, says scrap is getting a bit tighter. However, that lack of scrap was keeping pace with a lack of demand. He saw the trend continuing through the second quarter with little change in sight even beyond that.

Whether East or West coast, there is no question that material flow has slowed, following the slowdown in manufacturing. In the Midwest, it is the auto industry. In other places it is consumer goods or airline industry related.

The secondary business is not the happiest field to be in. Margins are slim. The market is working to shake off its excess capacity. Dealers find themselves reaching to compete for scrap and then dealing with a negative auction when selling ingot.

With material moving, however, there is still hope for enduring the present and even improvement for the future. The question is, "When?"

"It's going to be a year before things change," Castriota remarks. Even coming out of the usual New Year slowdown, he did not see a lot of change in the market. Consumer confidence, economic optimism and the recession all will have to change before he sees any uptick in the market.

In the western Great Lakes area, aluminum has been moving pretty well. "Flow has been quite good, there is quite a bit of material for this time of year," says Marty Vazquez, general manager at City Scrap Metal, Chicago. City Scrap buys from peddlers and the majority of the material that comes in is 63s -- material that is not too clean.

While in-flow was good around the New Year, Vazquez says it was tough to move material at the end of 2001. Despite that, he finds prices are not shifting a lot. "Price is holding pretty good," he says.

INTERNATIONAL OUTLOOK

Fish says that Taiwan is not as aggressive as it has been in the past, but is still in the aluminum scrap market. Korea has been a bit more active at fractionally higher prices.

Another international merchant agrees that the business to Taiwan and the secondary markets is not too bad. Korea continues to be fair.

China, although following normal patterns with a pullback for the Chinese New Year, has been a positive influence on the market. Demand has been good, especially in areas like cast aluminum and painted extrusions.

Japan is the bleakest spot in the international market -- or any market, for that matter. Reports from Japan range from "bad and only getting worse" to "bleak." With the Japanese Yen around 132 to the dollar, there is some legitimate concern that any worsening of the situation will turn the spigot off completely. To add agony to the existing pain, some traders fear that a deepening of the crisis in Japan could spread to other markets that, for the moment, are doing well.

Much of the potential for scrap in Asia follows the general economies of the nations there. Overall economic growth prior to 1997 was strong. There was a general recession in 1997, but by 1999 recovery was well on its way. Economists were hoping for an overall seven percent growth rate in 2000, but things collapsed quickly in key spots like Japan, Hong Kong, Taiwan and Singapore. International Monetary Fund (IMF) figures show that Malaysia's expected 8.5 percent growth turned out to be 0.3 percent. Korea, projected by the IMF to show 8.8 percent growth, turned in a relatively anemic 2.2 percent.

However, there are encouraging signs of both recovery and acceleration for 2002. The IMF has projected resurgence for the Asia-Pacific region, and projects 3.54.2 percent growth by the end of 2002.

SUMMER HEATS UP

Vazquez is optimistic about the summer months. "I think we'll see a lot of scrap coming our way," he says. City Scrap hopes to expand its aluminum market beyond its regular peddlers and into industrial suppliers.

"We're looking to increase our business with industrial suppliers," Vazquez says. He says they are in the market for prepared scrap. "We're looking for better quality material," he explains.

Vazquez sees some slight upticks in the market as the year wears on, but nothing moving in a steady trend. "The market will be up and down," he says. "I think it might increase a little -- maybe five percent," he says.

Fish says business should be better starting now through the second quarter and into summer. "Demand was there through some very difficult times," he points out. "It held up to a certain extent," he notes, and says that could bode well for the summer.

Through the winter months in the North, it is no surprise that people are not putting up aluminum siding or new windows. What is surprising is the amount of competition among scrap facilities for the material that was produced and is expected as the spring construction market picks up.

"There is real competition out there," Carlone says. "Contractors are calling around for aluminum prices. They're not just taking it off their trucks."

That would indicate that the street is aware that options are available and that things are tight enough that even the little guys are counting nickels and dimes.

The domestic sheet mills are seeing a tiny bit of improve

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UBCs Move Along

The UBC (used beverage can) market for aluminum remains steady to somewhat lower. The latest figures from the Aluminum Association (www.aluminum.org, Washington, D.C.) put the national recycling rate for aluminum at a touch over 62 percent. However, some observers expect that the recycling rate will show some slippage when 2001 figures are tabulated in April. This is due to several factors.

"Flow has been good and at reasonable spreads," says Steve Fehling, vice president of purchasing and metal management for Alcan Aluminum Corp., Cleveland. He sees the possibility of a slight slippage in the numbers. "A bit is pricing. September 11 comes into play with people not actively doing things," he says.

In addition, there are fewer buy-back centers in several areas of the country, the result of a couple of major companies scaling back their buy-back initiatives.

Fehling says he expects any such slowdown in UBC recycling rates to be temporary. "I think once we get into May that the numbers will pick up again," he says.

Another trend which may show up as a reduction in pounds recycled is the reduction in weight of can ends. Many companies are going from a 206 end to a 204 end or down to a 202 end. Not that long ago, can ends were at 209. "That trend is continuing and takes some weight out of the can," Fehling says.

Crown Cork & Seal Co., Philadelphia, is one of several manufacturers using the lighter, stronger top for aluminum beverage cans. The company estimates that the new ends -- or can tops, as consumers would term them--will save Crown an estimated 22 million pounds of aluminum per year on the 35 billion cans it makes. The new ends are used on both aluminum soft drink and aluminum beer cans.

Aluminum cans in 2000 represented about $1.2 billion in total value to the industry. About 1.9 billion pounds of material were recycled in 2000, the latest year for which statistics are available. That figured to 63 cents a pound, a number that is roughly in line with LME (London Metal Exchange) prices current in mid-January 2002.