LAS VEGAS Logistical issues related to the availability of rail cars and trucks for scrap shipments have combined with an overall decline in scrap flows into dealer yards to create grave supply-side concerns for steel mills.
Supply has become a bigger concern than quality, raw material buyers for steel mills and their suppliers said in an informal survey conducted by AMM. Two-thirds of the market participants polled named supply-related issues as the top concern for mill buyers, while one-third said the main concern is quality.
The ferrous raw materials business has become largely dependent on trucking over the past 30 years and this dependence has become a major problem since many companies cannot find enough trucks to deliver scrap, pig iron and other raw materials to mills and foundries, according to sources.
"When they can find them, the rates they are paying are higher. The number of trucks, especially dump trucks, in service has dwindled," one trader said. "The bad winter has contributed, since truckers are playing catch-up from the times they couldnt run. Many were commandeered by cities and states to haul salt at exorbitant rates. But thats only temporary. The underlying reason for the truck shortage is excessive government regulation."
Some trucking executives have said that 25-percent fewer trucks will be in service this year.
"New regulations only permit drivers to be on the road a certain amount of hours per day and impose resting times between runs. Drivers have been fighting this, but recently their request to have waiting times at load sites and drop-off sites not count as driving time was declined. This caused many truckers just to give up," the trader said. "The companies are complaining to us about this trend and are warning us that rates will go up and they cannot meet just in time deliveries upon which some steel mills and most foundries depend."
Several market participants said that scrap availability in the domestic market could come under further pressure should shipments by exporters, who have had a negative year thus far, return to normal.
"When domestic utilization rates approach 78 to 80 percent and export is anywhere near normal, we are a scrap-short country," one supplier said.
"Supply is tight now," an East Coast dealer said. "Mill buyers know that if the export market was operating at even 2013 levels that January, February and March pricing would have increased significantly. If the export market were to pick up, we could see a runaway market."
Charlotte, N.C.-based Nucor Corp.s investment in the production of direct-reduced iron (DRI) underscores the industrys concerns of future supply, some traders said.
"I think with electric furnaces being the drivers of the steelmaking industry, scrap supply is a concern. When Nucor adds big DRI capacity, I think it relates to iron unit availability in the future," a second trader said.
In terms of quality, some sources said it is likely that mill buyers will start valuing scrap on the basis of its yielded metallic value and not just as a commodity.
Better-quality scrap lowers melt costs and raises efficiencies, said a mill buyer who is not too concerned with supply since scrap "can always be bought for a price."
"Everyone is interested in lowering average cost, so the biggest concern is getting hold of enough machine shop turnings and heavy melt without the inflated demand causing the price of both to increase significantly, as we have seen in the past few months," said another mill buyer who called on scrap companies to diversify the types of grades they offer mills.
Increasing copper levels, chromium contamination and other trace contaminants, along with the possibility of fracking pipes and air bags in shredded scrap, were some other quality concerns expressed by market participants.