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Overcapacity and China drag on scrap: Sims

Keywords: Tags  scrap metal, overcapacity, China scrap, shredder, Sims Metal Management, Bob Kelman, Lisa Gordon

CHICAGO — The 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 AMM’s 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.

China’s increased 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."

Historically, the 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 (low)."

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 shredded scrap.

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 said.

Sales of new autos also impact the shredded market as higher auto sales lead to an increase in shredder feed.

Shredding operations 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 there."

The United States could see a resurgence in steelmaking capacity due to the country’s 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.

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    Oct 31, 2013

    Shredders will be shredding shredders soon for feeder stock. We love our shears.

    Oct 31, 2013

    Sounds like sour grapes and wishful thinking

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