While volatility seemingly goes hand in hand
with ferrous scrap pricing, movement in the near future, at
least, looks likely to be in a narrow range. The calming of
ferrous scrap's waters is expected to hold for much of the
remainder of the year as demand mirrors that in the steel
Early predictions that steel prices could
rise to record levels by midyear sent service centers scurrying
into the market to scoop up all the steel they could buy.
Unfortunately, with neither automakers, nor homebuilders, nor
appliance makers in much of a buying mood, that created an
oversupply at service centers and brought buying to a virtual
standstill. By the second quarter it was pretty clear that the
flat-rolled steel business, the biggest segment of the domestic
steel market, was tanking, executives at several domestic steel
"The softness is more centered on the
flat-rolled business; bar products remain pretty firm," a
purchasing executive at one Midwest mill said. And so goes
He's not alone in his view among steel
executives who see little or no change in the ferrous scrap
market during the second half.
William B. Larson, senior vice president and
chief financial officer of Commercial Metals Co. (CMC), said
the big Dallas-based steelmaker and scrap processor sees the
ferrous scrap market "drifting," with little or no sense of
direction. "As far as the next few months are concerned, we
think it will just drift. There have not been any catalysts
that will propel it up or down."
The first five months of 2007 were very
volatile, said Robert J. Melendi, CMC's vice president of
ferrous scrap sales. Early in the year, prices rose sharply but
then the market corrected itself. By June and July, the ferrous
scrap market was stable and August was expected to be as
The market is now looking for what will be
the factor or factors that will drive the next move, Melendi
said. Some believe it might be overseas demand, specifically
Turkey; others think it could be exports of finished steel
products by domestic steelmakers, both flat rolled and some
long products, if the dollar continues to weaken. "As for the
domestic market, the only one that is rocking and rolling is
the beam market because the non-residential-not
homebuilding-market is quite firm," he said.
Melendi said the company saw some tightness
in scrap supplies in the first quarter that was demand-driven.
If global demand for scrap revives, there is the potential for
more "spiky moves" again. But the ferrous markets demonstrated
once again that price draws out scrap. "Once prices hit those
February-March peaks, we saw unprecedented degrees of inbound.
In March, the flow (into our yards) became overwhelming. The
market reversed. It did its job. I would expect that you will
see that again."
CMC is uniquely positioned in the ferrous
market because it has enough scrapyards spanning the Sunbelt to
keep its four mini-mills and a new micro-mill planned for
Arizona well stocked with scrap. But Larson said the scrap
actually goes to the highest bidder. "But all things being
equal, if there are equal bids obviously we will give it to our
sister companies," he added.
John J. Ferriola, executive vice president of
Charlotte, N.C.,-based Nucor Corp., said he believes supply and
demand both on the steel side and the scrap side are going to
be down. "We don't think it is going to be down big, but I do
think it is going to be down some," he said, adding that he
doesn't see demand changing a lot during the balance of the
Nucor's executives see the second half of the
year continuing much like the first half. The automotive market
has been terrible and other manufacturing industries haven't
done well either, Ferriola said, noting that appliance
shipments were supposed to be up 6 percent.
As far as scrap supplies are concerned,
conditions are going to be pretty much the same for the rest of
the year, the way they were in the second quarter-a balance
between supply and demand, Ferriola said. "With good weather
and no issues arising, I see the supply pretty steady. And
frankly, I just don't see the demand side changing." All of
Nucor's mills are "pretty flush" with scrap, he added, with
scrap-inventory levels pretty secure.
A scrap buyer at one integrated mill said he
also sees plenty of scrap available through the second half of
the year. The steel industry went through a normal summer
hiatus with manufacturing plant outages and industrial steel
scrap generation lower, and no one blew their brains out for
Nor does he see any tightness or excess in
the scrap market. The flow of industrial material like No. 1
busheling is always determined by original equipment
manufacturers' production levels, while obsolete supplies are
driven by the weather and whether prices are high enough to
make it worthwhile for peddlers to start up their pickup
trucks. At present, he said, "there is lots of scrap available
at the right price."
When there is a surplus or deficit of scrap
in the marketplace, it gets magnified because people have more
leverage today, the Midwest mill executive said. If it's going
down, mills might have the leverage to push it a little bit
further; conversely, when it is going up a handful of
processors might push it up a little harder.
And despite the increasing global pressure on
ferrous scrap, the executive said he doesn't anticipate any
tightness or excess in scrap supply even with stronger offshore
demand. In the first half of the year, exports totaled 2
million tonnes more than normal, he said. But if there was
underlying U.S. demand or an appetite for that material, it
would have stayed here, he said. Much of that scrap had to pass
domestic steel mills to make its way to a boat. If they wanted
it, they would have paid the price to get it.
Also, the U.S. economy still generates more
obsolete scrap than its mills consume. "We still have a net
surplus of scrap. So in that sense, the scrap would stay here
before you had a real tightness issue, and I don't see that
happening," the Midwest mill executive said.