CHICAGO The U.S. scrap market "is the most opaque in the world, and rumors influence the price more than supply and demand because the industry loves to gossip," according to Severstal North America Inc.'s general manager of metallics purchasing Sachin Shivaram.
"There is not enough reliable information," Shivaram said March 12 at the Platts 9th Annual Steel Markets North America Conference in Chicago. "There is only a little bit of information, and everyone is trading on that same bit."
Shivaram recalled hearing the same three rumors from the same source this month. "Rumors are not helpful because they are cheap," he said. "If people put their money where their mouth is"by hedging scrap futures"that becomes valuable," he added.
Noting that the Dearborn, Mich.-based company purchases scrap every day, Shivaram added that the company "would do more (large) midmonth buys if there wasnt this stigma that says if you buy midmonth, youre short," he said.
Judging a good buy is tough, he said. "If we win (a purchase), its a Pyrrhic victory because you have buyers remorse the next day, thinking you overpaid."
Regarding hedging, Shivaram said that the company is in "support (of) a robust futures market," adding that "now there is no way for a counterparty to manage risk."
Shivaram also brought up Charlotte, N.C.-based Nucor Corp.s direct-reduced iron (DRI) plant, which is scheduled to open soon and is a source of some consternation among scrap suppliers who worry that these iron units will mean less business for them with steel producers.
"(One hears that) the flood of scrap substitutes is coming, but I want to inject some skepticism into that scenario," Shivaram said, noting that Severstal North America consumes 3.5 million tons of scrap and iron per year.
"The DRI story is old, but its had a resurgence," he said. "Were looking at DRI, too, but we shouldnt get ahead of ourselves. There has been no major investment except Nucors. Its not the solution for everyone. Its only economical if consumed at the same site its produced because it does not transport well."
Asked if vertical integration might work for Severstal, Shivaram said, "Sure, there is a pull to buy scrapyards. But didnt other mills overpay?"