When the bottom falls out, everybody gets burned

Jan 01, 2009 | 11:06 AM |

The bottom fell out of the ferrous scrap market in November. It was not simply that ferrous prices plunged to levels not seen in several years; worse, the orders for scrap all but vanished as well.

The victims feeling the most pain were the independent scrap processors. Some major mills, like ArcelorMittal SA, told virtually all of them that they would take no purchased scrap from outside suppliers in both November and December.

Adding to the pain were warnings from many mini-mills that they also would not be buying any scrap—not buying from outside suppliers, that is. Most of the large mini-mills now are scrap processors as well as steelmakers, and even a few of the smaller mills have abundant in-house scrap sources to tap.

Were steelmakers shutting down? No. Mills were still producing raw steel in November, but at a reduced rate. As is usually the case in such demand downturns, mills shipped more steel from their finished goods inventories and used more home scrap and purchased scrap that had already been delivered to the mill.....