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
What's different this time is that the industry has
undergone a structural change in the past few years. Dramatic
increases in scrap prices and other raw materials along with
the threat of supply shortages have produced a new steel
industry-one that resembles the integrated steel industry of
the past. Fifty years ago or more, steel mills not only owned
the means of producing steel-that is, the furnaces and rolling
mills-but also the raw materials like iron ore and coal.
Some steelmakers, like Commercial Metals Co., Irving, Texas,
have owned both scrapyards and steel mills for decades. Others,
like Steel Dynamics Inc., Fort Wayne, Ind., and Nucor Corp.,
Charlotte, N.C., have been on an acquisition binge in the past
two years, buying up some of the largest scrap companies in the
country. Those steel-owned scrap divisions, in turn, have
gobbled up some the largest yards near their new corporate
parents' mills in an effort to ensure supply and minimize
freight expenses to the mill.
That has all but closed the mills' gates to independent
scrap companies-not only the small, stand-alone, family owned
yards that have operated at one site in one city or town for
many generations, but also the bigger publicly owned scrap
Steel mills were still producing steel, but much of the
scrap being melted was coming from their scrap subsidiaries.
This was not a slowdown for scrap suppliers-it was about as
close to a collapse as has been seen in decades. Prices of iron
and steel have fallen drastically, even more drastically than
nonferrous scrap. From $900-a-ton prices that prevailed at
mid-year for top grades of industrial steel scrap like No. 1
dealer bundles and No. 1 busheling, dealers and processors were
receiving $150 a ton or less in November.
Nor is this a uniquely North American situation. Newspapers
throughout the world report that scrap dealers are in dire
financial straits. "This has affected us very badly," one
dealer told South Africa's Cape Times. "I'm looking to
reduce the number of staff I have. I have no choice."
In the United States, some processors have contacted many of
their industrial suppliers to explain that they can haul away
sheet clips from their plants but they have little or no idea
when they will be able to pay for the scrap. In some cases,
with demand as low as it is, less-desirable grades like mixed
borings and turnings may be destined for a landfill and the
manufacturer that generated the scrap may have to pay to have
it hauled away.
Others can no longer pay much for the smaller truckloads of
scrap they take in from tradesmen and smaller scrap dealers.
Even the dirt-poor scrap peddlers that push shopping carts
filled with old pipe and cans into inner-city yards are apt to
wonder whether even that work is worth such a minimal reward.
Owners and managers at small yards said they have had little
choice but to shut their doors temporarily or cut the hours at
the scale until they see mills return to buy some scrap.