New end-of-waste rules could increase competition
16 August 2011
New guidelines that will apply to aluminium and ferrous scrap in the European Union (EU) from October could change the way material is shipped between member states, affecting scrap prices and market dynamics, said Burges Salmon senior associate Chris Pritchett in an interview with industry publication Metal Bulletin this month.
The new procedures, should companies fall within their criteria, could see many cargoes of scrap classified as “end-of-waste” material. This will allow them to benefit from trans-frontier shipment discounts while also making scrap products more uniform in composition.
The EU waste framework directive specifies that material ceases to be waste when: it has undergone a recovery operation; it is commonly used; a market or demand exists; it meets technical requirements, legislation and standards; and when it has no overall adverse environmental or human health effects.
“[The new guidelines] present the ability for the dealer to certify that [the scrap] is end-of-waste and to step out of the restraints of waste-related legislation,” Pritchett told MB's readers
To qualify as end-of-waste material, ferrous and aluminium scrap must comply with general industry specifications or a customer specification, and include foreign materials (steriles) in proportions smaller than 2% (ferrous scrap) or 5% (aluminium) by weight. It must also be free of visible oil, and have no radioactive or hazardous properties.
The guidelines are not mandatory, but their criteria should not be hard to achieve for scrap recyclers, Pritchett said.
“[The authorities] tried to select criteria that they consider attainable. I expect that the criteria won’t have caused any shocks and will be received in the positive light of deregulation by the industry,” he said.
They may simply involve more detailed record-keeping, he said.
By setting out criteria that increase the uniformity of products, the guidelines could increase competition in the industry, Pritchett believes.
“Homogenous products could put pressure on market prices,” he said, as similar material will be on offer from a wider supply base. “It could effectively widen the market and increase competition.”
Mills will be able to secure tonnages from end-of-waste scrap sellers with the assurance that the impurities in ferrous scrap will not amount to more than 2%.
The proposed guidelines will also present opportunities for sellers.
Being free of the restraints of waste-related legislation will help cut down on paperwork and administration, Pritchett said.
“Trans-frontier shipment will be the big saving. If you are heavily involved in trans-frontier shipments, it could represent a financial benefit to your business,” he explained.
As an example of the potential savings, Pritchett outlined the current UK environmental agency charges for shipments that are classified as waste.
The UK agency currently charges £1,450 ($2,375) per notification of a waste shipment for offshore recovery, if it makes 20 shipments or less each year. Between 21 and 100 such shipments, it would pay £4,070 per notification.
Add to this the extra cost of paperwork and compliance, and the potential savings from following the new guidelines can amount to a considerable sum. Merchants willing to abide by the end-of-waste criteria could pass these savings on to consumers, therefore lowering prices.
This could, however, create a two-tier market – sellers that follow the guidelines and those that do not – with the end-of-waste approved suppliers potentially able to undercut the prices of suppliers of “waste” by EU definition.
Self-policing of the directive is an important aspect of the legislation. One question mark over the criteria, though, is the definition of the “qualified staff” who will certify that scrap material is in compliance, Pritchett said.
“A lot of the regulation talks of qualified staff that will be checked. We don’t know yet what is meant by ‘qualified’,” he said.
The directive defines qualified staff as those who are “qualified by experience or training to monitor and assess the properties of scrap metal”.
Considering that certification is to be self-policed, a widely accepted definition will be difficult to achieve. Surely many scrap merchants will consider themselves to be qualified to check material.
These qualified staff, however, will face the burden of proof that criteria are met. They will also have to apply a quality management system (certified by independent verifier) and issue a statement of conformity to the client.
Another potential stumbling block for shipments, Pritchett said, is that the authorities involved in the shipments at ports will simply check the certification, not the specification of material.
“There is a presumption [in the directive] in favour of the authorities’ view. It is quite strongly worded to say they put it in the regulators’ hands,” he said.
So if the authorities disagree with the certification – which could, quite possibly, have been signed off by the vendor – they, in theory, have the power to decide whether the cargo should be delivered or kept at port.
With the directive geared up for self-policing, it is difficult to know how this will be enforced, Pritchett said.
“The question is: will that stand under close scrutiny?” he said. “The potential is for authorities to be awkward and show constraint, which could slow down the commerciality of these shipments.”
Regulations such as those proposed for aluminium and ferrous scrap are unlikely to be where these guidelines end, according to Pritchett. Copper scrap is also on the EU’s radar.
“Copper [legislation in the EU] is expected to come, with paper and glass cullet end-of-waste legislation. They’ve already issued technical criteria for copper and copper alloys, and this is likely to come into the [new] regulation [when it is released],” he said.
The foreign material threshold is likely to be similar to those in the ferrous and aluminium scrap directive, in Pritchett’s opinion.
“The threshold of foreign materials in copper is one thing that will be interesting. It is likely to be the same as aluminium – less than 5%,” he said.
It is now just a matter of time before we see how many merchants sign up to this directive and how many do not.
Should the new regulations be implemented successfully, it is likely that the market will open out and prices could come under pressure.
This article was originally published by Metal Bulletin on 16.08.11