NEW YORK The U.S. ferrous
scrap export market is likely to perform better this year as
confidence in the economies of China, Europe and the United
States improves, according to Schnitzer Steel Industries
Inc.s top executive.
Tamara Lundgren, president and
chief executive officer of the Portland, Ore.-based company,
said Schnitzer sees potential for a better export market in
2013 based on key macroeconomic trends.
"You see China coming up
stronger. You see their new administration having made positive
comments regarding the source of their growth, driving from
urbanization and infrastructure investment. You see iron ore
prices improving," she told analysts during an earnings
conference call, noting that China played a significant role in
driving the arbitrage between iron ore and scrap prices.
"You see Europe stabilizing, and
that has knock-on effects obviously throughout the world. The
U.S., while it remains to be seen, should be on a recovery path
over the course of 2013," Lundgren said. "All of that should
lead to a rising price environment, which is what we are
beginning to see now ... but these issues remain to be seen and
the stability that could appear remains to be seen."
The company has already begun to
see some improvement in demand and pricing in both the ferrous
and nonferrous markets.
"Some of that is seasonal, as
winter weather may drop its character and drive prices higher,
and some of that relates to recovery in iron ore prices and the
infrastructure commitments in China. However, customer
inventories are still at low levels," Lundgren said. "One of
the indicators of the return of private-sector confidence will
be higher customer inventory levels, which should also reduce
some of the price volatility that we have been seeing so much
Lundgren noted that her views
were not based on the current rebound in iron ore prices, which
have strong, longer-term correlations with scrap prices.
"Its really the modestly improving trends that we are
seeing now and the fact that there is a potential for
improvement this year vs. 2012," she said.
Lundgren said the arbitrage
between iron ore and scrap prices was fueled by a significant
drop in Chinese intake of scrap as consumers increased their
use of iron ore over the past 10 months. However, conditions
could improve as the market sees more Chinese players increase
their use of scrap in blast furnaces due to government policies
on the environment and electricity costs.
longer-term growth from such export markets as China, India,
Turkey and elsewhere in Asia, Lundgren added.
Asked if a possible increase in
direct-reduced iron (DRI) supply could impact scrap, Lundgren
said the overall impact of more DRI use would be a net positive
for the scrap industry. "In the narrow sense, DRI may impact
the pricing of prime scrap by affecting the premium that prime
scrap has historically received. But in a larger sense, DRI
should be very positive for the scrap industry," she said. "The
business case for DRI is predicated on low and stable natural
gas prices. And if this assumption of low and stable natural
gas prices proves true, then there should be a big step up in
demand for steel generally."