Many of the ferrous scrap
industrys concerns for 2013 align with those any business
owner, employee, retiree, student or unemployed person might
have about the economy.
The outcome of debates over
foreign and domestic policies, regulations and controls, and
taxes and benefits affect everyone, no matter the economy.
These are much-discussed universal uncertainties that the
ferrous scrap market cannot avoid. But only time will reveal
how they will impact the industry, so market participants asked
to take a peek into 2013 chose to focus their attention on the
issues that directly affect them.
Obsolete scrap flows into
shredders as well as nonshredding yards emerged as a prevailing
concern--not so much on volume, but quite heavily on margins.
Supply flows are directly affected by economic activity, but
given a status quo 2012, suppliers say processing
margins will come under increased pressure.
From a supply perspective, most
participants surveyed by AMM predicted flows will
equal those recorded in 2012, or possibly trek a bit higher.
Only a few suggested flows could tighten this year.
The supply of used appliances
this year is expected to trend at 2012 levels because,
according to one source, generally replacement of an
appliance isnt an elective decision.
We are now seeing the
bottom of a cycle of scrap turnover of durable goods that is a
direct result of the limited production of goods during and
after the great recession of 2008, a second source said.
There were far fewer goods produced in 2008, 2009 and
2010 which are now turning over as scrap. In addition, the Cash
for Clunkers program took almost 1 million autos out of the
loop. As production ramped up in the past several years to
near-pre-recession levels, the durable goods produced in 2010,
2011 and 2012 will start to slowly increase scrap levels in
Those predicting a year of
similar scrap flows said there was little reason to believe
flows would improve. Others who predicted better scrap flows in
2013 cited such reasons as possible increases in construction
and manufacturing activity. In the Mid-Atlantic region, the
general expectation is that first- and second-quarter flows
will rise due to collections stemming from Hurricane
I am concerned that scrap
flows will be less in 2013, said one of the few who told
AMM that flows will be challenged. It seems that
obsolete grades have gotten more scarce in (the Midwest)
Some seemed unfazed, saying that
obsolete scrap flows would continue to respond directly to
scrap prices. The better the price, the better the
flow was the underlying sentiment.
Margins, however, are where 2013
could prove to be a maker or a breaker, according to several
Too many mouths at the
table and a smaller pie to share, a fourth source said.
Although demand is improving modestly, the availability
of scrap is also only modestly improving. It will be a
challenge, especially for shredders, to compete for the limited
supplies of scrap.
The real challenge is for
scrap processors to realize profits while chasing raw materials
with higher buying prices, a fifth source said.
Sooner than later, processors have to pay the right price
Margins will remain under
pressure until shredder capacity finds balance, sources
generally agreed. One said that part of the solution lies in
consolidation, not only among shredders but also among dealers,
of which there are too many.
At least one other source
agreed, adding that 2013 could bring some reprieve. I see
more consolidation in the scrap industry. Some want out due to
regulation and some want to grow and own all the tons
possible, he said.
Outside shredder feedstock and
the overall health of the shredding industry, however, there is
another issue of concern.
I see too much demolition
going on in the short term, which will dry up the supply for
later years and drive prices higher, a seventh source
said. The reality is that demolition is one of the
largest single sources of scrap--almost as great right now as
peddler and auto salvage combined. While all the talk (is)
about shredders and peddlers, the demolition business has been
booming and the end of the boom is within sight. When this
happens, I estimate 20 percent of the current flow will be
The only continued boom
will be two to three years of scrapping infrastructure from the
coal industry, which the (Obama) administration has literally
demolished, he said. Small and mid-sized demo guys
will start starving on the scrap by the end of 2013, while
large firms will be OK for two to three years on these coal
plants, unless real estate dramatically picks up.
With 35 to 40 percent of the
scrap supply originating from demolition jobs, he added, the
industry needs to take notice.
Most respondents felt that
issues relating to supply and margins in 2013 would mirror
those of last year. The same applied to speculation on pricing
trends for 2013, with many saying that ferrous scrap tags would
be similar to those in 2012.
It should be a narrow
price range again, with a swing of less than $75 per gross ton
for the entire year, one source said. Another predicted
similar seasonal price movements, but hopefully with an
upward sustained price range due to higher capacity utilization
at mills domestically.
A buyer at a Mid-Atlantic mill
divided his outlook into quarters. Up in the first
quarter due to weather and renewed inventory builds at
steelmakers. Leveled off in the second quarter. Down in the
third. And leveled off in the fourth quarter, he said,
with one caveat. UnlessÑlike (in
2012)Ñthere is an early bounce.
Of the many industry players
AMM contacted, a few chose not to speculate on 2013.
Its hard enough predicting the next month was
a common response.
Its a real crapshoot
right now in terms of being able to forecast accurately,
one source said. Right now, my long-term thoughts and
forecast wouldnt be worth the paper theyre e-mailed