LONDON U.S. scrap consumption will climb 7 percent to 64 million tonnes in 2014 as steel mills raise their finished steel output, according to AMM sister publication Steel First, citing estimates by Metal Bulletin Research (MBR).
The increased production will target recovering demand from the construction and manufacturing industries, and will come on the back of weaker levels in 2013.
U.S. crude steel output is forecast to fall to 87 million tonnes this year from 89 million tonnes in 2012, largely due to lower levels of finished steel production in the first half of the year.
U.S. crude steel output decreased 6.7 percent year on year between January and June as basic oxygen furnace (BOF) and electric-arc furnace (EF) steelmakers responded to lower consumption and declines in finished steel prices.
More recently, however, relatively stable domestic prices and improving demand from key end-user sectors have prompted mills to begin raising output again.
Improving growth in U.S. industrial production and housing starts is expected to prompt domestic steel producers to raise output to meet strong end-user consumption.
This, in turn, will drive a 3-percent increase in U.S. crude steel production, MBR forecast.
At the same time, U.S. scrap consumption will increase at a faster pace than crude steel output next year due to higher capacity utilization rates at scrap-intensive EF steel mills producing both flat and long products.
U.S. crude steel production is forecast to climb to 90 million tonnes in 2014 from an estimated 87 million tonnes in 2013. As a result, scrap demand will increase to 64 million tonnes from about 60 million tonnes in the same comparison.
Moreover, the premium between U.S. prime scrap (Chicago No. 1 busheling) and obsolete scrap (Chicago shredded) grades will widen further through the remainder of the year and into 2014, as over production of shredded material across the country will continue to keep a lid on these benchmarks, MBR said.
In fact, for most of the past decade, building a shredder became common practice as demand and prices of shredded material climbed significantly.
As a result, the number of shredders operating in scrapyards across North America has surged to more than 300 in 2013 from an estimated 193 in 2000.
Busheling prices are expected to remain firm into next year due to stronger demand from high-quality steel producers and tightening supply.
This is because the surplus generated from strong manufacturing and industrial production during 2010 and the first half of 2011, which contributed to the sharp fall in busheling premiums through the second half of 2011 and 2012, has now dissipated.
That said, if the recent strength of manufacturing and industrial production rates is sustained, a surplus could build up again, which would temper the strength of busheling premiums over shredded, according to MBR.
A version of this article was first published by AMM sister publication Steel First.