We live in a world with a finite amount of
resources, the supply of which is growing shorter day by day.
Combine that with explosive economic and manufacturing growth
in various countries around the globe, and what do we get?
Apparently, just the right mix.
Ferrous scrap is only one of the commodities
that is in tight supply in a resource-short world, one
prominent U.S. scrap industry executive says. "I don't care if
you are talking about oil, or agricultural commodities, or
metallics," said Daniel W. Dienst, chairman, president and
chief executive officer of Metal Management Inc., Chicago. "The
consensus is we are in a resource-short world. With the
explosive growth outside of the United States and still fairly
mild growth characteristics inside the United States, it really
sets up what we believe is a favorable long-term demand-supply
situation for all commodities and, in particular,
The U.S. manufacturing economy is in a
sloppy, strange period at the moment, Dienst said. However,
many of his company's industrial accounts are still running
pretty strong. "The steel mill and scrap guys are finding their
way through this market. (There is) no shame in $300 bundles
and busheling and $250 to $270 shred," he said, but added that
if steel demand recovers and economic growth accelerates in the
United States in the second half and into next year it could be
a time to "look out."
Drawing a focus on scrap, Dienst said quality
industrial steel scrap grades like No. 1 busheling and bundles
remain "tightly calibrated" commodities. With the diminished
manufacturing capabilities in this country during the past 20
years, those iron units will continue to be in demand-not just
in the second half of 2007 but for the foreseeable future.
That, in turn, leaves little room for purchasing errors, he
Shredded scrap, on the other hand, appears to
be in plentiful supply currently, Dienst said, although
supplies of cut grades like No. 1 heavy melt will dwindle as
more of the metal that was once sheared and sold as prepared
scrap now goes to the big, new megashredders. "More of this
(cut scrap) will go to shredders over time, particularly as
people upgrade their facilities," Dienst said. His own company
will be starting up a new megashredder at its export yard in
Newark, N.J., in a matter of weeks, he added.
Another scrap industry executive in the
Midwest said he doesn't believe that any specific grades will
be in tight supply for the rest of this year. Instead, scrap
supplies will ebb and flow throughout the second half.
"Right now, shredded is in plentiful supply
and prime scrap is tight. But at the same time, some mills are
using less scrap now," he said. "The market is dynamic. It is
almost like a merry-go-round on what will be the next scrap
commodity to go up in demand. Shredded is plentiful this month;
it could be tight next month and cut scrap could be tight as
Despite the pessimism that prevails in some
segments of the scrap and steel industries, he said he remains
bullish that the rest of 2007 will be better for both
industries. "A lot of our guys are more conservative in their
outlook, (but) I felt like we had to work a lot harder in the
past 30 days to buy the scrap we needed for our customers,
harder than we initially anticipated."
Long products have been carrying the market,
but flat-rolled will be stronger in the second half, he
predicted. Pricing will be supported based on the weakness of
the U.S. dollar. The U.S. steel market could make a strong
finish at the end of this year. The service centers and others
haven't bought all the steel they need, and the international
scrap market is still hot. The weak dollar is the main driver
for scrap leaving U.S. shores and, at the same time, will
reduce the amount of finished steel imports coming into the
country, he said.
But one scrap export executive said he
believes the ferrous market will be more of a domestic story
than an export story in the second half, in part because of new
U.S. steelmaking capacity, citing the SeverCorr LLC mill in
Columbus, Miss., and the additional melt capacity at Steel
Dynamics Inc.'s mill in Columbia City, Ind., as two
"We will see a very mild uptick (in August)
and September and then it will top off in October, but we will
be at a better level," he said. This also will drive up scrap
export prices-first, because exporters will have to pay more to
draw scrap away from the domestic market; and second, because
ocean freight rates are up. "We've turned here and I think the
key will be the U.S. domestic economy (and) the steel business,
both of which should better," he added.
Prices for busheling, factory bundles and
other grades of prompt industrial scrap are likely to go up
more dramatically because of the new demand. Even though
SeverCorr will import a lot of pig iron and other iron units,
it also will be a big buyer of prime scrap, he said. At the
same time, the low volume of industrial scrap generated by
automakers and other manufacturers this summer will put
pressure of those scrap supplies.
Shredded is in good supply and, in fact, is
in too good supply, he said. "That's why export is weaker," he
said. "We try to convince the steelmakers to use more shredded,
but it is very hard to convince the guys to change their
practices, especially when the tech support that made their
furnaces sees scrap prices as they were five years ago."