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FULL OF SCRAP Wanted paper clips and bobby pins

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$370 a long ton for shredded? You haven't seen anything yet

What sort of ferrous scrap will be left to melt in, say, 2017? It is a fair question to ask, given the steel production predictions discussed at the Steel Success Strategies XXII conference in New York co-sponsored by AMM and World Steel Dynamics Inc. (WSD).

Michael Marley
Michael Marley
Unveiling their outlook for the industry, WSD managing partners Peter F. Marcus and Karlis M. Kirsis said that the "Age of Metallics," which they had discussed in years past, "seems likely to remain in full force." In other words, the expansion of steelmaking in the next decade should be so strong that scrap supplies, particularly obsolete scrap supplies, won't keep pace with new demand.

This is not to say there will be a ferrous scrap shortage. Those words always conjure up notions that scrap from old cars and demolished buildings will disappear completely and be replaced by scrap alternatives like pig iron and direct-reduced iron. There will always be ferrous scrap. It is an end product of developed economies.

The problem instead is that there might not be enough to meet the growing demand if the WSD scenarios of 3.9-percent or even a more modest 3.2-percent annual growth in steel production is attained. The obsolete steel scrap reservoir will expand only at a 1.9-percent annual rate for the next decade, according to WSD. Steel consumption growth in the past few years has been slower than it was in prior decades, and thus iron and steel scrap from old machinery and buildings has been lower. At the same time, though, the expansion of steel production here and overseas has grown at a faster rate, helping to drain that obsolete scrap reservoir, and it will continue to do so in the next decade.

No one really knows exactly how much scrap is in that reservoir. Some years ago, a consultant hired by the former Washington-based Institute of Scrap Iron and Steel put together a report saying that there would be more than enough scrap to meet demand in the foreseeable future. That followed a dire prediction of a ferrous scrap shortage in the 1980s by the late Rev. William H. Hogan, a Fordham University professor and steel industry economist.

The words "scrap shortage" are still viewed with disdain both by scrap processors and scrap buyers at steel mills. "There will always be ferrous scrap" many in both industries are fond of saying, and that includes Marcus. But the caveat they always add is "For a price." That caveat has proven correct in recent months, with shredded soaring to a record $370 a long ton in March to surpass the prices paid for rival industrial steel scrap like No. 1 dealer bundles and No. 1 busheling. And No. 1 heavy melt was not too far behind, selling for as much as $310 a ton.

There is a fixed volume of industrial scrap. It is a byproduct of the amount of steel consumed by manufacturers, whether auto or appliance or aerospace. No manufacturer makes scrap just to sell as scrap. So when demand for ferrous scrap rises, scrap suppliers and consumers turn to the obsolete reservoir and offer higher prices to draw more material into the market. This past year, such increases were driven by overseas buying, particularly by steel long products makers in Turkey and elsewhere in the eastern Mediterranean. U.S. ferrous scrap exports soared to a record 5 million tons in the first four months of this year. If such a pace is sustained for the rest of 2007, exports could top 15 million tons-3 million tons higher than the record levels seen in each of the past two years and 5 million tons more than what most scrap exporters and traders used to consider a good year 10 million tons.

Now summer, the flow of obsolete scrap from demolition jobs should be at its peak, yet scrap dealers and processors talk about the absence of big demolition jobs. Many say they are seeing jobs from demo suppliers that are averaging about 5,000 tons, well below the tonnage that was coming into their yards a year or two ago.

So, if steel production matches the forecasts and demand for obsolete scrap continues to rise, don't worry about a scrap shortage. But don't be too surprised in, say, five or 10 there are distinctive collection cans in the office for old paper clips and hairdressers signing contracts with a local scrap dealer for discarded bobby pins.


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