November has arrived. The leaves are falling (and clogging
up the storm drains), tailgate parties are under way at
stadiums across the country (providing an economic boost to the
nation's bratwurst and beer makers) and the ferrous scrap and
steel industries are slowly entwining in the year-end buy or
not-to-buy scrap waltz.
The counterparts on the popular TV show demonstrate how even
the most glamorous celebrities have two left feet on a dance
floor yet are willing to work with a skilled partner to compete
against rival couples. The scrap and steel waltz, by contrast,
pits one partner against the other. No trophies are awarded and
no prize money is donated to a favorite charity. It's more like
a seventh-grade school dance, with the boys on one side of the
auditorium and the girls lined up along the opposite wall.
But the year-end buy/no-buy dance has changed. Most of the
large mini-mills, the major users of scrap, are now scrap
suppliers as well as steelmakers. They resemble the integrated
steel industry of decades past, which not only owned the means
of production-rolling mills and furnaces, for example-but also
the raw materials like coal and iron ore.
A few steelmakers have owned scrapyards for decades. Others,
like Nucor Corp. and Steel Dynamics Inc., have acquired theirs
only in the past few years, and have prodded their new
subsidiaries to buy up even more yards near their mills in an
effort to assure supply and minimize freight costs.
For some of these mini-mills, that means not only a steady
supply of both prompt industrial steel scrap from auto stamping
plants and other metal manufacturing industries, but also
obsolete scrap like shredded vehicles and appliances and
structural steel scrap drawn from demolition work. Some of
those mills cut off deliveries as they approach year-end, with
executives anxious to impress shareholders and industry
analysts that they are being frugal and not locking up money in
stockpiles of raw materials. But rather than piling up at
mills, of course, the scrap instead accumulates at their
Scrap dealers aren't fools. Most realize the annual year-end
frugality is coming. It used to be just December, but now most
expect the dance to begin in November and even continue into
the new year in some instances. But the two partners aren't
dancing to the same tune that has played year-in and year-out
for the past two decades. Nowadays, the domestic
scrap-consuming steel mills have a new set of competitors who
have added their instruments to the band. Steelmakers in
Turkey, China, South Korea and several southeast Asian nations
realize that they have an opportunity to buy-and to buy in
large quantities-when U.S. mills are sitting on the
And the export market has a special appeal to some U.S.
scrap processors, especially those not located as closely to
key port cities like Philadelphia and New York. When export
activity is strong, buyers have no trouble reaching as far
inland as they have to and paying the additional freight costs
for what they need. After all, an extra $5 per ton of rail or
truck transport costs is small when matched against the
demurrage charges for a 35,000-tonne vessel sitting at the
docks for an extra day or two. Plus, specifications for export
scrap aren't as demanding and onerous as they can be at many
domestic mills. Some dealers even joke that they can sell
virtually anything to the offshore market as long as it sinks
in water and sticks to a magnet.
Likewise, they no longer have to wait until the big export
yards book orders for two or three bulk cargoes. There are more
and more smaller traders ready and willing to buy up enough
shredded and heavy melt to fill a 20- or 40-foot container and
load it onto a ship for delivery to smaller steel mils in, say,
India or Vietnam.
Other domestic scrap dealers have adopted practices that
their fathers and grandfathers pioneered in the days when their
only markets were open-hearth furnace mills. In those days,
some mills only bought scrap on the open market when they
needed to boost raw steel production and either lacked
additional blast furnace and coke oven capacity to produce
enough hot metal or were unwilling to fire up those that had
been banked or idled when steel demand was weaker.
In those days, dealers and processors would talk about
"sitting on their scrap." Their point was simply that they had
banked some of the profits made earlier in the year and could
withstand the lack of sales for a month or two at year-end,
when few of them were thrilled with the idea of working
outdoors in subfreezing or snowy weather. When January arrived,
most believed the mills would be starving for scrap and if the
winter weather was dumping a foot or more of snow in some
northern cities that would only serve to feed the mills'
desperation and fears that supplies would run too low.
One veteran mill buyer used to offer his younger co-workers
in the purchasing department this warning "We'll never shoot
you for paying too much for scrap, but we might if you let us
run out of it." In other words, paying too much for scrap is
better than paying workers in the melt shop and the rolling
mill for standing around with their hands in their pockets.
So once again it's time to tune in this year to "Dancing
With or Without Scrap." Watch closely to see which partner is
the first to slip on the dance floor.