This article with the headline
'Coming to terms' is featured in the March/April issue of
American Metal Market Magazine, which will reach subscribers in
With President Obama still in the first 100 days of his second
term, caution remains the default frame of mind for many in the
ferrous scrap world as players look for bright spots in what
they see as an otherwise unclear political environment.
I dont think the next few years are going to be
good at all. We were looking at buying a new scrap shear and
replacing a few of our older material handlers, but that has
been put on the back burner for now, one southern dealer
said in a post to AMMs website shortly after
Obamas re-election. Peddler traffic is about
nonexistent and we are seeing a slowing on the industrial
But if the history of the past
century is any clue as far as ferrous scrap is concerned, there
could be good news in terms of pricing. Past presidential
performances and other political factors strongly suggest that
scrap prices will rise noticeably during Obamas second
term. (All scrap value comparisons in this article are based on
AMMs reported annual averages for No. 1 heavy
melting scrap delivered to consumers in Chicago, Philadelphia
and Pittsburgh between 1913 and 2012.)
On average since 1913,
presidential second terms have produced gains of 28.4 percent
in scrap value over the price levels seen during the final year
of a first term. Here are presidents
who served second terms, along with their
-- Franklin D.
(3rd term vs. 2nd term)
-- Harry S.
-- Dwight D.
-- Lyndon B.
-- Richard M.
-- George W.
(Coolidge took office in
August 1923 for a partial term and was elected in 1924;
Roosevelts first term was 1933 to 1937, his second term
was 1937 to 1941 and his third term was 1941 to 1945; Truman
took office in April 1945 for a partial term and was elected in
1948; Johnson took office in November 1963 for a partial term
and was elected in 1964; Nixons second term ended early
in August 1974.)
Limiting the comparison only to
those presidents who saw scrap values gain during their second
term, that average was an even-higher 53.5-percent increase, so
Obama has historical precedent on his side.
Another element working in
Obamas favor is party. Democratic presidents historically
have been much more likely than Republicans to see scrap prices
rise during their overall terms. In fact, Democratic
administrations historically have seen annual scrap prices rise
an average of 31 percent vs. about 18 percent for Republican
presidents, although Republican presidents have tended to do
better in second terms.
Finally, congressional makeup
also plays a role. The most successful years for scrap price
increases have come under Democratic control, with average
gains of 49 percent, while under Republican control the gains
have averaged 36 percent. But when control of Congress is
split, as is the case now, prices tend to rise only about 2
percent on average, so this is one factor that could mitigate
the movement of scrap prices over at least the next two years.
However, when a Democratic president faces a mixed Congress,
gains still average 37 percent as opposed to average losses of
16 percent when Republican presidents face mixed control of
Taking all of these factors into
account--historical second-term performances, Democratic White
House administrations and Democratic presidents working with
split congressional control--points to the likelihood of gains
in scrap value over the next four years. And
while these numbers are correlative and dont necessarily
denote causation, the relationship of scrap to general economic
health does play an important role.
But none of this exists in a
vacuum, of course. The fate of scrap prices is tied inexorably
to the health of the steel sector. Three main concerns are on
the minds of the President, the nation and the metals industry:
How much positive influence the administration had on the
overall economy, how much more of an impact can it have in the
next four years and what is the relationship of the first two
to metals health.
If (the) pace of
manufacturing job growth (persists) in President Obamas
second term, well be on track to add 1.2 million
manufacturing jobs--easily surpassing his goal of 1 million new
manufacturing jobs, Alliance for American Manufacturing
executive director Scott Paul said earlier this year.
Others agreed. The fact is
that when I look at where my business and my industry is as
opposed to four years ago, things are significantly
better, a source at one service center said. It
might not be under the leadership that people are happy with,
but clearly things are moving in the right direction. I do
think this will help the metals industry in the long
A steel trader remained
cautious, but indicated that the worst of the recession might
be over. I think the economy is continuing to heal and
continuing to get better. With it, steel demand should also get
better, he said.
For others in the industry, that
hopeful element is missing.
I hate to be too dramatic,
but nothing that comes out of Obama is good for steel.
Theres a lot of steel that goes into the coal business
... and Obamas view of the automotive business
doesnt really include the steel industry either. ...
Im not very optimistic, Gary Stein, president of
Triple-S Steel Supply Co., Houston, told AMM after the
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 scrap 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
Another scrap source sees dire
times ahead. I see too much demolition going on in the
short term, which will dry up the supply for later years and
drive prices higher. ... 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
gone, he said.
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 midsized 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, the industry
needs to take notice, he added.
Yet early on in Obamas
second term, industry observers have seen signs for hope.
We are pleased that the
President seems to recognize the contributions of manufacturers
like our nations steel industry to a strong economy. And
we were encouraged to hear him talk about the importance of
growing manufacturing, enhancing our infrastructure and
promoting fair trade, Thomas J. Gibson, president and
chief executive officer of the American Iron and Steel
Institute, said in a statement following Februarys State
of the Union address. However, he didnt provide
many specifics about how his administration is going to do
those things. The speech was a mixed bag of admirable goals
with uncertain outcomes, and was missing some important
The Steel Manufacturers
Association also responded positively to the Presidents
plans for manufacturing, which included launching new
manufacturing hubs and revamping the nations aging
infrastructure. We fully support the objectives of a
manufacturing resurgence, Adam Parr, the
associations director of policy and communications, told
AMM. Domestic steelmakers are competitive and
supportive of (the Presidents) pro-growth
But some doubts remain about the near-term political
situation. The Presidents State of the Union
address and comments by Sen. (Marco) Rubio (R., Fla.)
regrettably showed how entrenched both sides have become,
Parr said. There are dueling messages. This is problem