Change is inevitable, but perhaps nowhere is this more keenly evident than in the ever-evolving and often-volatile scrap industry.
The quality and supply of heavy melting steel scrap have changed drastically in the past decade. The main driver of the change has been the export market, according to mill buyer and broker sources, but also draining the pool are the sharply higher prices demanded by dealers for all grades of scrap, some buyers said.
"For the most part, P&S (plate and structural scrap) has stayed the same. It is the No. 1 heavy melt that has changed, and that's mainly because of the export market," one mini-mill scrap buyer said, noting a dramatic change in the supply of heavy melting steel scrap in the past few years.
A key reason for that is the change in the mix of exporters' heavy melt sales to their offshore customers. Traders are now selling cargoes of 80-20 and 70-30 heavy melt mixtures rather than the solely quarter-inch-thick cargoes of No. 1 heavy melt. The 80-20 heavy melt grade is expected to include about 80 percent of No. 1 heavy melt and 20 percent of No. 2 heavy melt; likewise, 70-30 is a 70-percent cargo of No. 1 heavy melt and the balance No. 2 heavy melt.
Mill buyers might dislike the U.S. scrap exporters' combo of heavy melt, one mini-mill broker said, but it's better than what they are seeing from some European export yards. "They call it 80-20 and 70-30," one former steel executive said, "but I think it's more like 10-90."
Did the European scrap exporters create these 80-20 and 70-30 mixtures? No, one southern broker said. Such combinations have existed in the U.S. market for decades; they just weren't labeled as such. In the South, some mini-mills and brokers typically bought cut ferrous scrap called mixed heavy melt, which includes varying amounts of both No. 1 and No 2 heavy melt, he said. Likewise, some Midwest mills buy a grade called No. 2 heavy melt extra dense. How thick the scrap might be isn't as critical as requirements that it is no more than 3 feet long and that each railcar load must have a certain weight or volume.
Another mill buyer said the quality of No. 1 heavy melt has deteriorated most sharply along the U.S. East Coast, and he blames the exporters for siphoning off much of the material.
But one broker said it is unfair to blame exporters for downgrading the supply and quality of cut scrap. The big megashredders are eating up more of both the No. 1 and No. 2 heavy melt these days. Sometimes it is a matter of feeding the expensive machines when there is no other feedstock and raising the value of the scrap, he said.
Shredded normally sells for a premium over heavy melt. Some of the big shredders might be gobbling up this material, he said, but in many Midwest markets where he trades there is still enough plate and structural scrap—much of it too thick to be stuffed down a shredder's yaw—to meet the needs of domestic mills.
Quality problems in heavy melt grades also are emerging from the types of scrap that are now being added to the mix, one buyer said. The heavy melt stream is filling up with reinforcing bar and other steels that were made from scrap in mini-mill furnaces. Each time that material rolls into the scrap stream, it has more residuals, he said. This is different from the steel products that were produced from iron ore and pig iron in the integrated mills, which included a smaller percentage of scrap in the charge.
Now the mills are finding that more of the purchased secondary grades like heavy melt might include unwanted elements like copper and sulfur, he said. "If you are making rebar or another steel product in which formability is not as critical, you may not care that there is 0.3-percent copper in the melt," he said, but if you are making a sheet product then it's a problem.
Another veteran Midwest broker said that mills are more critical of scrap supplies today because they have testing equipment like mass spectrometers to back up suspicions that the scrap has too high a copper content or other unwanted elements.
And it's not just the exporters that have shrunk the secondary ferrous scrap stream, he said. The shift in the grades bought by the big integrated mills also has reduced the supply. The integrated mills, which buy only 10 to 20 percent scrap for their basic oxygen furnaces, had been selective about what they would use. Factory bundles and heavier cut scrap like plate and structurals were preferred, while heavy melt and shredded were unwelcome and usually left to the mini-mills and foundries.
But that has changed, largely as a result of computerized scrap-buying programs like Tube City IMS LLC's Optimizer. Brokers and buyers for the big mills enter the prices of the various ferrous grades into the computer program and let it tell them what will be the optimal mix of ferrous scrap for that month's steel production.
"We run a system that tells us what our optimum buy should be," one mini-mill scrap buyer said. "When we enter all the parameters of the chemistry, yield and electrical use, it tells us to buy, say, 50 percent of No. 1 heavy melt and 30 percent of plate and structural scrap. It's all because of costs. Heavy melt is one of the lower-cost grades. We follow the system which gives us a path on what to buy."
These computer market analyzing programs have even taken the big basic oxygen furnace shops into aisles of the scrap supermarket where they have never been. Some Midwest mills are now buying rail crops and railcar wheels—material that was once largely foundry scrap feedstock.
Plate and structural scrap might still pass muster with most buyers and brokers, but some complain that there are regions of the country where this key grade of cut scrap is in tight supply. It's readily available in some of the larger cities in the North, but in short supply elsewhere. This, one Pittsburgh broker said, might be because there aren't as many major demolition projects.
When scrap prices spiked in 2004 and again in 2008, that set off a wave of demolition activity. Some are anticipating another such surge when the Obama administration's infrastructure rebuilding programs get moving, he said, but noted that it has yet to produce any major teardowns.
"What the scrap dealers and the mills that use a lot of that P&S are looking for are some big wrecking projects like a stadium, but what they have seen thus far in 2010 is small potatoes," he said.