Talk of the town: recyclers gathered in Vegas in early April for the ISRI 2006 Convention & Exhibition.

Reflecting the strong market for most grades of scrap metal, attendance at the Institute of Scrap Recycling Industries Inc. (ISRI) 2006 Convention & Exposition in Las Vegas this spring hit a record number.

According to ISRI, attendance at the conference, which was April 2-6 at the Mandalay Bay Resort & Casino, topped 4,000 for the first time in the event's history.

While the focus of this year's conference was on the importance of workplace safety, many attendees spent their time at the show talking about the hot secondary commodities markets. Many of the event's speakers also shared the upbeat outlook regarding markets.

STRONGER FOR LONGER? Panelists at the Spotlight on Aluminum session discussed the outlook for the primary and secondary aluminum markets, agreeing that the trend for the metal is pointed upward in the short term.

However, the session's speakers also indicated that factors are at play that could lead to price reductions for aluminum in the longer term.

Stephen Johnston, senior industry analyst at Alcan, headquartered in Montreal, Quebec, Canada, said the factors contributing to higher short-term aluminum prices include record-low inventories; increasing power costs that have lead to the closure of some smelters; and the considerable weakening of the U.S. dollar throughout the last three years. Additionally, smelter technology improvements that could drive down operating costs are moving more slowly than in the past and the cost of emissions from smelter and power plants under the Kyoto Accord are also pushing up aluminum prices, he said.

Johnston also speculated on events that could lead to lower aluminum prices. He said he expects alumina prices to decline during the next few years, though not below $200 per ton, because of refinery expansions. Prices for coal, natural gas and oil are also likely to decline somewhat in the next few years, causing energy prices to moderate, according to Johnston. He added that lower aluminum prices could result from the potential decline in prices for competing materials; decline in demand; and the possibility that the political situation in Russia could improve, leading to major power and smelter projects with Western capital.

Robin Bhar of UBS Investment Bank, based in Switzerland, said metals pricing will likely be "stronger for longer," including those for aluminum. According to Bhar, investors have come to appreciate the profit from commodity markets, seeing them as a good way to diversity portfolios.

Bhar said UBS is forecasting a shortfall of 100,000 tons of aluminum for 2006 and an oversupply situation of nearly 300,000 tons for 2007.

"Zinc and aluminum tend to do better in more advanced stages of the business cycle," he said.

Energy costs account for a third of the production costs for aluminum compared to 10 percent to 15 percent for copper and zinc, Bhar said. Therefore, escalating energy costs could lead to the closure of 750,000 tons of primary aluminum capacity in Europe, according to UBS.

Bhar also noted some factors that could negatively affect aluminum pricing going forward, such as an Avian Flu outbreak, a slowdown in Chinas urbanization, an emerging-markets financial crisis, higher oil prices and the tightening of liquidity by central banks.

Aluminum is not the only material currently benefiting from a healthy market. Paper is also enjoying hearty demand.

A PAPER PLANET. Some 3 billion new capitalists are driving up demand for all commodities, including scrap paper, Pete Grogan of Weyerhaeuser Inc. told attendees of the Paper Spotlight session.

Grogan said the rush into free market economic systems in China, India and Eastern Europe is fueling the global growth in paper and packaging production. "It is the essence of the recovered paper story--because they are consuming a lot more products."

While North American paper mill capacity roughly matches the needs of its market, the European market is still exhibiting growth. Grogan noted that with the recent expansion of the European Union from 15 nations to 25, the economies of Europe "are more integrated than at any point in time since the Roman Empire."

The active trading is helping to bolster the economies of former Soviet bloc nations that were at one time home to inefficient, state-supported paper mills.

Without question, the one-fifth of the world's population living in China that is striving to advance economically is "having the most dramatic effect on recycling of any nation in the world," said Grogan. "China is the 800-pound gorilla. In my opinion, it's like a new sun in the economic solar system."

Grogan noted that the nation is building the world's largest paper mills, even though it has only 4 percent of the world's trees. The country is likely to continue to produce record annual amounts of paper and paper products for years to come.

Grogan predicted that China will consume 20 percent of the world's recovered paper by 2020.

Along with China and Eastern Europe, India's economy also features a growing middle class that currently stands at around 300 million people and counting. Like China, the nation of India is building larger shopping centers to offer packaged goods to its growing middle class--part of a recovered paper chain that is developing.

INDIA'S GROWTH. Taking place within the shadow of China's well-documented economic growth is a surge in economic activity in India, attendees of a session at the "Trade with India" session learned.

Scrap trader Vikram Kochar of Universal Metals Inc., Great Neck, N.Y., said that India's gross domestic product is currently the fourth largest in the world and its annual growth rate of 7 percent is second only to China's.

The booming economy is driven by entrepreneurs "who want to make money," said Kochar, as well as by massive foreign investment that has allowed India to become "the second most preferred spot to invest in (after China)."

Although India's reputation is as the "back office to the world," while China is the "manufacturing plant to the world," Kochar noted that auto maker BMW recently invested in a new plant in India while steelmakers Mittal and Posco are investing considerably in steelmaking capacity in the nation.

However, Kochar noted roadblocks in India's path to industrial growth, including a "crumbling infrastructure" that makes it difficult to transport raw materials and finished goods and a "heavily layered and complex government system" that can make it difficult to site new manufacturing plants.

The Indian government is addressing the infrastructure problem, he said, though some $150 billion will probably be needed to begin having an impact on the upgrading of roads, ports, utilities and rail networks. "The government is finally stepping up," said Kochar, pointing to a recent $I0 billion highway project to connect India's four largest cities.

The people of India have a generally favorable view of the United States and Americans, Kochar said, making it a suitable investment climate for American firms.

Tom Mele of Connecticut Metal Industries, Monroe, Conn., has been visiting India since the mid-1970s and has been pleased to see the nation "getting away from the [Soviet-style] controlled economy" that it used to favor.

Mele says India is not especially difficult to trade with and the nation has "solid banking and legal systems" that are based on Anglo-American models. Additionally, Indians involved in international trading probably speak English.

Culturally, though, Americans must adjust to a bartering mentality that involves negotiating that can start from a very low point. In such cases, agency agreements that allow an Indian resident to conduct the price negotiations can be "an excellent way to go," he says.

Also at the session, ISRI President Robin Wiener urged attendees to consider participating in ISRI's study mission to India, which will be Jan. 14-19, 2007.

ISRI 2006 Convention & Exhibition attendees can note yet another event on their calendars for next year. The association's 2007 convention will be April 17-21 in New Orleans.