The usually volatile
U.S. ferrous scrap market seems fairly steady, and is likely to
continue to bump along in a protracted generally sideways
ferrous scrap demand) has been fairly consistent, said
Rob Bakotich, executive vice president of sales and marketing
at Detroit-based Ferrous Processing & Trading Co., in
contrast to the wild swings that often mark the scrap market.
John Anton, director of steel services at IHS Global Insight
Inc., said the market is in a holding pattern. Others call it
stagnant or boring.
Marlene Owen, director
of investor relations at Fort Wayne, Ind.-based Steel Dynamics
Inc., which owns recycler OmniSource Corp., said that domestic
scrap demand could look weaker than it actually is because of
the current softness in international demand, resulting in more
scrap metal that would normally be exported instead remaining
in the United States.
Joseph C. Pickard,
chief economist and director of commodities at the
Washington-based Institute of Scrap Recycling Industries, noted
that trade figures from the U.S. Census Bureau and the U.S.
International Trade Commission indicate that domestic ferrous
scrap exports (excluding stainless and alloy steel scrap) of
1.3 million tonnes in June were down 36.5 percent from the
previous month, and the first-half total of 9.3 million tonnes
was 13 percent below a year earlier.
As for domestic demand, it could just be that the market is
still stuck in a summertime lull, said Kimberly Leppold, senior
steel analyst for Metal Bulletin Research. Usually there
is a ramp up of steel production in the fourth quarter,
she noted, and with recently increased steel demand--especially
for hot-rolled coil--this is a distinct possibility. Others
doubt that any such bump will happen until early next year.
Anton said that while
electric furnace steelmakers (especially flat-roll producers)
are making more money, certain supply disruptions have slowed
production and reduced scrap needs. He said that integrated
steelmakers are actually doing the best, partly on the back of
the strong automotive market, and they use more iron ore than
I dont see
any dramatic pickup in steel long products (which tend to be
more construction related), Bakotich said, which is one
of the factors keeping the ferrous scrap market so
One problem is that
the industrial production and manufacturing sectors are showing
little growth, if any, keeping steel production and demand
down. Pickard noted that U.S. industrial production showed no
growth in July after rising 0.2 percent in June. According to
the American Iron and Steel Institute, U.S. raw steel
production of 64.7 million net tons through the end of August
was 4.3 percent below 67.7 million tons in the first eight
months of last year.
uncertainty has had an inhibiting effect on spending. Owen said
this can be seen in the continually thinning stocks on hand at
U.S. steel service centers, which totaled just 2.2 months
supply at the end of August, according to the latest Metals
Service Center Institute tally.
question the actions of federal, state and local
governments--especially the federal government--have resulted
in policies contributing to the uncertainty in the market and
have made it difficult for the manufacturing sector to
expand, Christopher Plummer, managing director of Metal
Strategies Inc., West Chester, Pa., said.
sequestration, the pending debt ceiling debate and everything
else the government is--or isnt--doing, consumers have
been surprisingly resilient, Pickard said. The economy is
still growing, just not at as fast of a rate as we would
One reason, Leppold
said, is because consumers are tired of governmental deadlines.
There has been fatigue relating to the governments
sky-is-falling mentality. Congress always seems to be able to
find a Band-Aid at the last minute. If anything, she
said, this is affecting the construction-related steel long
products side of the market, which isnt improving that
While there has been
noticeable growth in both the single- and multi-family housing
market, improvement remains slow in both the commercial and
institutional construction sectors, said Lynn Lupori-Gray,
senior consultant at Hatch Management Consulting. Even
the growth in the residential construction market could slow if
interest rates go up. There is just so much that the government
can pump into the economy.
The automotive sector
is strong, with expectations by IHS Automotive that North
American build rates will reach 16.2 million vehicles this year
and 18 million by 2020, which should have a very positive
impact on flat and long steel products alike, an East
Coast-based scrap trader said.
Increases in auto
sales also could have a more direct impact on the ferrous scrap
market, Leppold said. Increased auto output results in the
generation of additional prompt or industrial scrap, and when
someone buys a new car they generally sell or trade in their
old one--and many of the older cars are scrapped.
In general, scrap
flows are OK, although they arent blowing the doors off,
said Mitchell Padnos, executive vice president of Louis Padnos
Iron & Metal Co., Holland, Mich. Any imbalance between
supply and demand is currently in favor of demand. There
is almost no grade of scrap that cant be moved, from the
low side, such as turnings, through prime scrap, Padnos
said, although prime scrap in particular is seeing a fast
That should continue
as long as demand remains strong at sheet steel mills, he said,
noting that recent steel supply disruptions had helped in that
regard. Generally there is always someone out of the
market, Padnos said, but with a number of furnace outages
now resolved, and a settlement announced between U.S. Steel
Corp. and union workers at its Lake Erie Works in Ontario,
there could soon be too much material in the market, especially
with all the shredder and other scrap processing capacity.
We are our own worst enemy, he said.
Pickard noted that
there are more than 300 shredders operating in the United
States, including a number of mega shredders, while 40 years
ago there were 160 to 170. Meanwhile, recycling companies
continue adding shredders even though a combination of
increased processing capacity and lower prices have severely
compressed profit margins.
Plummer said that a
15-month decline in steel prices before their recent recovery,
along with weak export demand, also had put downward pricing
pressure on scrap prices.
U.S. exports of
ferrous scrap tend to be choppy, with wild swings as foreign
buyers enter and exit the market, and that remains the case.
Turkey, the largest importer of U.S. ferrous scrap, is
notorious for swooping in once every couple of months and
buying all it can before staying out of the market for a
But Owen said it
appears that the Middle East, including Turkey, as well as
southeast Asia and China have all recently shown some
resurgence in demand. The question, however, is how much scrap
will be purchased from the United States and how much will be
purchased from Europe.
Leppold said that in
August a significant portion of Turkeys imports were of
European origin. That is not surprising, Plummer said, not just
because of Turkeys proximity to Europe but because with
the economic problems there, Europe has a lot more scrap
available for export. In fact, this year exports from the 27
European Union countries have surpassed those of the United
China also is key in
determining the direction of the scrap industry, even though
the great majority of its steel is produced in blast furnaces
and not electric furnaces, Pickard said. The question, he said,
is how much steel its mills will be producing going forward and
if new economic stimulus measures are introduced there. That is
a distinct possibility as its new president, Xi Jinping, has
stated that he doesnt want Chinas gross domestic
product growth to fall below 7 percent.
Anton said that
Chinese steel mills currently are running at a big loss.
I dont think they can keep this up, he said.
But the question is whether they will cut their output
radically, which would be positive for the market, or make more
moderate cuts and continue to rely on exporting what isnt
But, as with Turkey,
it is unknown how much of its scrap needs will be met by the
United States. While China has some new initiatives to bring in
cleaner scrap, Lupori-Gray said mills there are looking to
eventually develop a domestic scrap market and import less
material. And Plummer pointed out that Japan is willing and
able to export scrap to Asia.
All told, the rest of this year will be pretty flat unless
there are any shocks to the system, an eastern ferrous scrap
trader said. Lupori-Gray agreed. Everything is stagnant
right now, she said. There is nothing on the
horizon that points to a significant move in either