Armco Metals Holdings, Inc. (AMCO) Well-Positioned to Exploi Armco Metals Holdings, Inc. (AMCO) Well-Positioned to Exploit Rapidly Emerging Chinese Steel Scrap Regulations, Growing Paper Market
China accelerated overall steel scrap use during the front half of 2014 amid massive curbing of imports, which were off by 49% according to the Bureau of International Recycling. The latest World Steel Association report further indicates that Chinese crude steel consumption rose 9.4% year over year to just over 47.5M tonnes. Such data points are a clear indication of how aggressive the Chinese State Council policy has truly been when it comes to bolstering their domestic scrap market and reducing the steel industry’s reliance on foreign imports.
Key Chinese export markets looks healthy if somewhat beleaguered, despite the only 2% global market growth forecast for 2014-2015 by WSA earlier this month (3.8% seen in 2013), with EU-28 steel scrap usage up 3.4% year over year to around 47.7M tonnes, while China’s neighbors, South Korea and Japan, also are seeing steady consumption growth at around 2.1% and 5% respectively. Anticipated 4% year over year steel use in the EU-28 this year is set to tack on another 2.9% in 2015 and NAFTA demand is also looking like it will rebound sharply, with the expected 6.4% year over year growth for 2014 set to climb another 2.2% in 2015. Chinese real estate sector slowing has offset broader steel consumption noticeably within the country, making its movement felt across the gamut, from steel scrap to iron ore prices.
Smaller players in the regional iron ore market like Western Australia have been the hardest hit by sagging commodity prices, with notable examples like Fortescue Metals (ASX:FMG) leading Western Australian premier Colin Barnett to point the finger at BHP Billiton (NYSE:BHP) and Rio Tinto (NYSE:RIO) recently, claiming that they are overwhelming the global market with an iron ore supply glut. Of course, a major aspect of the underlying metrics here has been Australia’s primary export market, China, slowing overall steel use/importation. WSA estimates overall Chinese steel consumption growth will slow down even further next year, down from the 1% growth figure for this year, to around 0.8% in 2015.
For a well-connected Chinese steel scrap recycler like Armco Metals (NYSE MKT:AMCO), all of this is actually good news, given that the company enjoys relations with not only the government (thanks in large part to their exceptionally sustainable approach to the market), but with some of China’s biggest state-run steel foundries. The company is also interwoven with over 100 SME-scale steel producers throughout the country and enjoys the logistical benefits of having a sophisticated distribution/sourcing network across China via its subsidiaries, which are all located in key steel producing areas.
The company’s primary facility, Armco (Lianyungang) Renewable Metals, Inc., is just five miles from one of the country’s major deep-sea ports at Lianyungang and AMCO also enjoys plenty of upside from their diverse global network of over ten raw material providers in ore-rich countries like the U.S., Australia, Brazil, Indonesia, India and Ukraine, among others. The company does more than steel scrap too and has their hands in iron, chrome, nickel and manganese ore, as well as a host of other scrap types, like aluminum, copper, and stainless steel, taking full advantage of their logistical footprint to put themselves in a position to become one of the leading providers in the country, especially when it comes to steel scrap.
China’s neighbor to the south, Vietnam, imported nearly 4M tonnes of scrap steel in 2012, most of it directly from China and since then they have seen a small boom in electrical steel companies, leading to increased imports of around an additional 2.5M tonnes per year. The near export markets look good for AMCO and their domestic situation is favorable despite broader underlying market dynamics, with protective regulations by the Chinese government itself helping to secure the company’s bottom line.
To top things off AMCO has also recently moved to diversify into much-needed wood pulp, with China growing from 15% of global paper demand a decade ago, to nearly 25% this year according to HSBC. Dynamics which are further characterized by technology offsetting paper consumption in the U.S. and EU. HSBC estimates 2.4% growth over the next five years globally in the paper market and as China has taken the top slot as the world’s largest paper consumer (also the biggest producer of paper/paperboard), AMCO’s deal last month to start importing Eucalyptus Nitens wood chips from a Chilean supplier, indicates some exceptionally well-timed diversification on the company’s part.
Learn more about Armco Metals at www.ArmcoMetals.com
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