Ferrous scrap market unpredictable despite consolidation

Mar 31, 2012 | 07:00 PM | Lisa Gordon

Tags  ferrous scrap market consolidation, ferrous scrap prices, Nucor, Steel Dynamics, Schnitzer Steel Industries, Lisa Gordon

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ggressive consolidation by domestic steelmakers to lock up scrap supplies has resulted in producers capturing a large portion of the overall pie, so it is something of a mystery as to why mills are still subject to volatility in the market.

When the asset buying spree really built up momentum in 2008, some industry players suspected that steel producers would be able to manipulate the ferrous scrap market because they had their hand too deep in the cookie jar. Time has proven this premise wrong as the fickle scrap market clearly continues to do whatever is pleases. Scrap prices illustrate the point. No. 1 heavy melting steel scrap averaged $417 per ton last year compared with $357 per ton in 2008, according to Brad Macaulay, a Metal Bulletin Research analyst.

Before 2008, producers like Nucor Corp. and Steel Dynamics Inc. (SDI) decided to take the next step and actually married their long-time scrap suppliers in megadeals that came with upward of 10-digit price tags. Ferrous scrap costs are the largest input cost by far for electric furnace (EF) steelmakers, and producers were quick to snatch up assets as a strategy to better manage supply.

In addition to Charlotte, N.C.-based Nucor’s buy of David J. Joseph Co. and SDI’s acquisition of OmniSource Corp., the producers have continued their sweep of scrap asset buys and add to their arsenal.

The U.S. scrap market reached 81.5 million tons in 2010, according to the Institute of Scrap Recycling Industries, Washington, and regulatory filings reveal that producers were brokering or processing 19.6 million tons.....