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USS lockout could put pressure on scrap

Keywords: Tags  scrap, Plate & structural scrap, shredded scrap, U.S. Steel, lock-out, Nanticoke, Lake Erie Works, Lisa Gordon

PITTSBURGH — The lockout of unionized workers at U.S. Steel Corp.’s Lake Erie Works will put further pressure on the Ontario ferrous scrap market and could have a trickle-down effect on other major scrap regions, according to market participants.

The Pittsburgh-based steelmaker initiated the lockout of union workers at 9 a.m. April 28 after labor negotiations between the two sides failed. Although it is still too early to estimate how long the lockout could last or to what extent the steel mill will be able to continue to operate, scrap market participants predicted the action could leave some material usually sold into the mill looking for new homes.

The company did not respond to requests for comment about its planned scrap purchase program during the lockout, and it has not announced any plans to stop producing. In fact, the union claimed in early April that the company was teaching nonunion workers how to operate the Nanticoke, Ontario-based complex’s hot-strip mill, indicating that it planned to continue to produce metal to some degree (, April 8).

Nonetheless, scrap market players are still expecting the raw materials market to feel the lockout’s impact in the form of a possible oversupply situation for some grades and expected downward movement in prices.

"I have already been talking to a lot of people and you are going to see plate and structural scrap (P&S) offered into Detroit or sent to Buffalo, where it can be transloaded and resold into the Pittsburgh market," said one scrap supplier to mills in the Ontario region. "Plate and structural is plentiful and this could create a glut in other markets."

A New York scrapyard owner agreed that the lockout could result in an oversupply of some scrap grades. "This definitely has an impact. U.S. Steel is the leading buyer of P&S in the region," he said. "While it will have a greater effect on the guys in Ontario, western New York will be the second-largest area affected. Material from Ontario won’t move east. It will move to Detroit because of the easy trucking route."

Mills in Cleveland and Youngstown, Ohio, also could benefit from the expected influx of P&S usually slated for Lake Erie Works, the scrapyard owner added.

U.S. Steel’s Lake Erie mill purchased scrap in March but was out of the market in April for a reline, sources familiar with the mill told AMM at the time. Scrap sources suggested that the April reline was strategically timed by the steelmaker, which was aware of the pending contract vote.

As a result, the lockout won’t have much of an effect on the scrap market, at least in the short term, one scrap broker said. "I can’t see their absence making a difference in May because they didn’t buy in April and it was expected this month would be the same. But if this goes on for a prolonged period, it will have a major impact."

A lockout during the last contract negotiations at Lake Erie Works lasted eight months before the two sides reached a three-year deal (, April 16, 2010).

In addition to P&S, the Canadian mill consumes shredded scrap, heavy melting scrap and bundles. Shredded scrap and bundles could feel the sting of the lockout, but to a lesser degree than P&S, sources said.

"On grades like shred and prime, there will be an impact in Ontario with the other mills not having to compete on price," the broker said.

Meanwhile, two other Ontario mills are running well but a third mill has been leaner in its scrap buys due to a soft order book, according to sources.

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