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 scrapyards.
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 sidelines.
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.