The words "supply driven" or "supply constrained" seem to be
popping up more often in conversations with scrap processors
and brokers. Some might argue that it's just a short-term
situation that occurs infrequently. Winter weather can assume
the blame-peddlers and small dealers take a break when snow
starts falling, while the larger yards are reluctant to operate
much of their heavy machinery because equipment breaks down
more often in the cold and the snow makes repairing it that
much more difficult.
The cold weather normally has little impact on industrial
scrap generation. Plants still make vehicles and appliances
regardless of the outside temperature. The only critical
problem is transportation. Picking up roll-off containers or
scheduling a railcar loading can be a problem. Snow slows all
traffic, and gondola cars or truckloads of No. 1 bundles and
No. 1 busheling may not arrive as soon as anticipated.
For those mills operating with a minimal amount of scrap on
the ground or just-in-time inventory management of raw
materials, winter sometimes means a shipment of scrap arriving
a few days late-not simply a few hours late.
This notion that supply, or lack of it, is driving the scrap
market and setting the price may have longer-term implications
for steelmakers and foundries. Some dealers and brokers believe
that supplies of obsolete scrap aren't shortened just by winter
weather. There is, as some would say, a structural change to
U.S. exports of ferrous scrap have more than doubled in the
past two years, much of it shredded scrap and the heavy melt
grades. When that material goes overseas, it won't come back
into the U.S. steel recycling loop some 20 or 30 years from
now. Much of it is being made into rebar for construction
projects in China and the Middle East. When those bridges and
buildings are torn down at some date far in the future, the
scrap steel is not likely to come back to this country-it will
remain in the local markets.
Scrap buyers at mills pooh-pooh the notion that obsolete
scrap could be "supply constrained." Drive around the
countryside, says one buyer, and you still see plenty of old
tillers and tractors rusting away on many farms. Also, says
another, the infrastructure replacement work that the Obama
administration is funding will add to the supply when the
girders from old bridges are torn down and shipped to
scrapyards to be cut apart.
That may be true .?.?. eventually. Those so-called
shovel-ready construction projects have not yet overwhelmed the
scrapyards with old rebar and I-beams and probably won't for
the next few years. Even then, while much of that material will
flow into local scrapyards, a substantial portion likely will
be sold to major ferrous scrap exporters or their feeder yards.
Even some of the tonnage that goes to the smaller processors
will leave this country and find its way to foreign mills
thanks to the growth of container shipping of ferrous
So what's a mill buyer to do when he finds that much of the
scrap isn't coming back to his melt shop as it once did?
Some of the integrated steel mills faced a similar problem
in the past decade when mini-mills invaded the flat-rolled
steel market and started scooping up more industrial steel
scrap. The integrated mills dealt with the problem by setting
up buybacks with several of their major customers or
discounting new steel products by the value of the scrap
returned. These practices normally apply only to prompt steel
scrap-the clips and trimmings from stamping presses, for
Are we likely to see this activity in other scrap markets?
Will sheet steel be sold to automakers with the proviso that it
be returned to the mill that made it when the car is junked and
shredded 10 years hence? That may be a bit far-fetched, but
there have been other developments in the steel industry in
recent years that have been more than a little surprising.
Thin slab casting, for example, set the entire integrated
industry on its ear. Some of the big mills that assumed they
had a lock on the flat-rolled market are no longer around, and
the steel girders and corrugated siding at their plants have
been torn down and remelted into new steel products. Who would
have imagined that the industry would one day cannibalize
It isn't just obsolete scrap that is supply-shortened these
days. Reduced manufacturing means a smaller volume of
industrial steel scrap. That shortage has pitted integrated
mills against their flat-rolled mini-mill rivals.
True, much of the flat-rolled steel produced by basic oxygen
furnace (BOF) mills comes from iron ore and not scrap, but the
integrated mills are still scrap buyers as well as consumers of
their own home scrap. Some have even shifted part of their melt
mix through the use of computer planning programs and are now
buying railroad wheels and rail crops as alternatives for No. 1
bundles. And when demand for steel is inching upward and the
blast furnaces are running at their peak, it's not unusual to
see the big mills using scrap to boost the output of their
One veteran broker argues that some of these mills have
learned that even though the cost of scrap is a small portion
of their overall melt cost, when they find themselves in
competition not only with each other but also the mini-mills,
the outcome is higher prices.
Higher prices won't bring many more bundles and busheling to
the market, he says. That scrap is limited to the amount that
is produced and comes into the market quickly. Few, if any,
manufacturing plants are inclined to lay it down until the
price goes up. Scrap is simply a by-product of their stamping
presses, to be disposed of as soon as possible so it doesn't
begin taking over space in the employees' parking lot.