U.S. scrap market can expect headwinds for possibly two years
before the sector returns to more prosperous times, according
to a Sims Metal Management Ltd. executive.
Overcapacity in scrap
metal processing and the swooning presence of China have
curtailed margins and created a less-than-optimal environment
for recyclers, Bob Kelman, president of Sims North
America Metals division, told attendees at AMMs
Steel Scrap Conference in Chicago. "The industry begins and
ends with two words: overcapacity and China. Swings in prices,
supply and demand are the norm."
Overcapacity in scrap
processing is prevalent in all North American markets, which
has created intense competition between companies. "In some
cases, market cannibalism is occurring," Kelman said. Metal
recyclers used to expand to gain market share, but a new trend
of consolidation in an effort to maintain existing market share
could be on the horizon.
offerings of exported finished products are putting pressure on
domestic producers, and less domestic production means less
demand for scrap metal. "We are in a difficult period right
now. Excess steelmaking is a global problem, and there is
surplus capacity," he said.
"The scrap industry
has seen momentous swings from super-cycle highs to
death-spiral lows," Kelman said. "There is a road, but it is a
tough road in the short term. Better times will come."
industry goes through an eight- to 10-year cycle of peaks and
troughs, and the domestic industry appears to be at the bottom,
he said. "We have been in the downturn for quite some time now
and should be coming to the end of what should be a cyclical
Kelman predicts an
upcycle will be in full swing within 18 to 24 months. He said
he pays close attention to used-vehicle sales as a barometer
for market conditions since this is the primary source for
Auto scrapping rates
are currently 12 million to 14 million vehicles per year.
"Going forward, when used-car markets fall it will put pressure
on the used-car market and allow more cars to be scrapped. This
is one of the leading indicators, in my opinion," Kelman
Sales of new autos
also impact the shredded market as higher auto sales lead to an
increase in shredder feed.
need to be keenly aware of what they are processing, he said.
"Shredder operators need to understand what they are buying and
putting in their shredders. Operators who are not tracking
yields will be disappointed. You cannot recover what is not
The United States
could see a resurgence in steelmaking capacity due to the
countrys highly skilled labor force and political
stability, according to Kelman. Electric furnace production
could see the greatest potential for startups and higher run
rates due to the large scrap reservoir.