Lofty Times

The phrase “fall of 2008” has a double-meaning for recyclers, who recall the autumn season that year also brought with it a sudden fall in secondary commodity orders and prices.

The financial crisis in the second half of 2008 created stranded international shipments, buyers unwilling or unable to pay at former higher prices, and recyclers left with logistical and cash flow nightmares.

After the initial turbulence, metals producers throughout the world severely cut back their melting schedules—dramatically affecting the demand for scrap metal.

Throughout 2009 melt shop activity improved, first in Asia and then slowly in North America and Europe. Capacity rates continued to improve in 2010 and have held steady thus far in 2011.

Once Asian steel, copper and aluminum production began improving in early 2009, prices on the scrap market began to improve—reflecting both this improved demand as well as the lack of scrap generation in North America and Europe.

In terms of supply and demand, the world’s developing economies continue to exhibit enough demand to strain the supply of scrap-exporting nations like the United States.

The result for demolition contractors, mixed C&D recyclers and other generators of scrap metal have been healthy prices paid by scrap processors and brokers for their material.
 

A SLIGHT PAUSE
The ferrous scrap spot market in the first 20 days of February allowed steel mills to pay a little less per ton for their scrap, but the price drop was only about 4 percent. According to pricing survey data from the Raw Material Data Aggregation Service (RMDAS) that is compiled by Management Science Associates Inc. (MSA), Pittsburgh, national averages paid on the spot market for the most common scrap iron grades dropped from $17 to $21 in February. (See the chart in the “By the Numbers” department.)

Although prices dropped across the board for prompt industrial grades, shredded scrap and No. 1 heavy melting steel (HMS), mills still paid more than $400 per ton for all grades across all regions. There is sentiment in the scrap market that the slight dip in February may be temporary and not part of a longer skid.

No. 1 heavy melting steel (HMS) maintained a national average price of $417 per ton on the spot market, continuing to fetch higher pricing than it did throughout the second half of 2010. The national average drop of $17 per ton marked just a 3.9 percent decrease from the $434 that mills were paying the previous month.

Prices for the three grades covered in the RMDAS Index moved in fairly close sync across all three RMDAS regions (North Central/East; North Midwest; and South).

Scrap recyclers speculate that many domestic electric arc furnace (EAF) steel mills had completed building up their winter inventories by the February buying period, making them less likely to make a spot purchase if the price was not to their liking.

Additionally, spot orders were unlikely to be placed from China or Taiwan in the first several days of February, as that nation’s factories and mills were largely shut down for the Lunar New Year holiday.

A scrap processor in the Upper Midwest says as of late February, though, demand is strong from mills and foundries in his region. “I’m having no problem selling steel scrap,” he comments.

Ongoing demand is being paired with obsolete scrap flows that have been slowed down because of weather obstacles in much of the United States in February. A scrap processor in Missouri says that, except for one three- or four-day thaw, most of February has provided difficult conditions for the peddlers who collect and haul scrap in rural counties.

That was in contrast to January, when the same Missouri recycler says the weather caused fewer interruptions, and scrap flowed across the scale at such a high rate that equipment and crews working overtime could not keep up with production.

Both scrap recyclers are uncertain how to gauge where March pricing is likely to go. “Mills are buying, but it looks like no one knows where prices are going in March,” says the Upper Midwest processor. “The initial sentiment was that it would go down, then sideways, and now people are saying maybe it’ll go up,” he says of ferrous pricing.

The domestic steel industry appears to be serving customers who are more eager for their products with each passing month. The American Iron and Steel Institute (AISI) has reported that in December 2010 steel mills in the United States shipped out 7.1 million net tons of finished steel.

The figure marks an 8.6 percent increase from the 6.5 million net tons shipped out the month before and a 17.8 percent increase from the 6.0 million tons shipped in December of 2009. For all of 2010, the 83.4 million tons shipped by the domestic steel industry represented a 38.3 percent increase over 2009 shipments of 60.3 million tons.

Globally, the New Year started off with a steel production figure in January 2011 that was 3 million metric tons above the output total for the month before.

According to the World Steel Association, Brussels, in January 2011, 119.4 million metric tons of steel was made in the more than 60 nations that report to Worldsteel. That figure surpasses the 116.2 million metric tons made in December of 2010.

Steel producers in China provided some 40 percent of that increase by ramping up output by 1.3 million tons. Steelmakers in Brazil, Japan, Germany and Spain reported production increases ranging from 300,000 to 500,000 metric tons range for January vs. the month before, helping with the global increase.
 

HOLDING FIRM
While recyclers throughout the United States say copper scrap prices have been volatile through the middle of February, the overall trend has been toward the upside. In the middle of February, copper scrap was priced at roughly $4.50 per pound, a 25-cent increase from January. This trend has many industry observers speculating that copper scrap could reach $5 per pound sooner than previously expected.

In light of the volatility in copper scrap pricing, many smaller scrap yards are keeping very little inventory on hand. One scrap dealer near the East Coast says that once the company gets a full load or even a half load of the material, it looks to move it.

The increase in copper scrap pricing comes despite the fact that Chinese consumers, key buyers for the material, have been less aggressive in their purchasing. One source says that while Chinese consumers and their brokers are not buying clean copper, they are more aggressively buying lower-value electric motors. Another vendor says buyers for Chinese companies appear to be purchasing new copper cathode as a way to avoid further stoking copper scrap prices.

Despite China’s smaller current role in copper scrap markets, buyers from that nation will likely have to re-enter the market in the near future, which could further boost prices for copper scrap.

The slowdown associated with the Chinese New Year holiday also has contributed to China’s relative absence in the copper scrap market, say sources.

Despite escalating prices, inventory levels for copper as monitored by the exchanges in London, Shanghai and New York are climbing, according to a Bloomberg report. Many overseas consumers of copper have been tightening their monetary policies in an effort to stave off inflation. This could be a factor contributing to escalating inventories.

China’s dependence on copper scrap purchased through the open market is generating concern in that country. A recent report by the Chinese Ministry of Industry and Information Technology (MIIT) calls for a significant increase in the amount of recycled metals collected and processed in that country. In a recent announcement, MIIT says China hopes to produce 12 million tons of recycled metals in 2015. The country generated 6.33 million tons in 2009.

Aluminum markets also have been signaling fairly solid pricing. A scrap dealer in the Midwest says aluminum prices have been creeping upward after lagging through much of the most recent bull market. In the middle of February, aluminum was priced at roughly $1.12 per pound.

Movement of aluminum scrap continues to be good, though it appears to be driven in part by speculation on the COMEX and the LME (London Metal Exchange), rather than by traditional end markets.

Foul weather has had an effect on nonferrous scrap flow at a time when generation is typically lowest, the first quarter of the year.

Additionally, the U.S. economy is slowly coming out of a deep recession, meaning generation of prompt scrap has been restrained.

“It is still a struggle getting material. It is awfully quiet this time of year,” a Midwest scrap dealer says.