Sunny skies, heated market

Industrial and commercial buildings with structural steel and other forms of ferrous scrap have maintained their stored value throughout most of 2017, as monthly scrap iron prices have largely been either stable or rising.

A combination of steel industry and economic conditions within North America and globally have helped keep demand for finished steel, and thus ferrous scrap used to make it, steady throughout the year causing scale prices to remain relatively attractive.

As the year enters the fall and winter months, forecasting where the scrap market will head is as tricky as ever, with circumstances in both the U.S. and global economies poised to change just enough to upset the balance between scrap demand and supplies.

Melting at a good pace

When scrap dealers have consistent bids to buy their iron and steel inventories, they can keep their scale prices at a level that pleases demo contractors. In 2017, that buying interest has been solid and steady thanks to mill buyers in both the U.S. and those beyond.

The steel industry in the U.S. has played its role in the 2017 ferrous market with steadily growing output. Figures from the of the Washington-based American Iron and Steel Institute (AISI) show that through Aug. 5, 2017, crude steel output has been 53.8 million tons, at a mill capacity rate of 74.5 percent.

That represents a 2.7 percent boost in production from the 52.4 million tons of steel produced during the same time frame in 2016, when the mill capacity rate was 72.4 percent. The trend has been for output to rise through most of 2017. In the week ending Aug. 5, 2017, domestic steel production of 1.76 million tons, while mills operated at a capacity rate of 75.6 percent. That 75.6 percent average helped boost the year-to-date average.

Those weekly figures also compare favorably to output of 1.66 million tons in the first week of August in 2016, when the mill capacity rate was 70.9 percent (representing a 6.3 percent increase in production year against year).

In addition to steady-to-growing orders from steel mills in the U.S., scrap dealers on the Atlantic and Pacific coasts have recently seen improved orders coming from overseas buyers, which helps put demand-based upward pricing pressure on the entire scrap market.

Export market pricing indices formulated by American Metal Market (AMM) showed price increases in the $10 per ton range for midwestern U.S. sellers in August, but the real volatility occurred in export transactions.

Purchases off the Pacific Coast in August resulted in a nearly $50 per ton price increase for exporters in California, while buyers representing mills in Turkey helped boost Atlantic Coast shipments by an average of nearly $35 per ton, according to AMM.

Another steady buyer of U.S. scrap iron and steel in 2017 has been the Mexican steel sector. Figures collected and distributed by the Brussels-based World Steel Association (WorldSteel) show that while the U.S. managed just a 1.3 percent rise in output in the first half of 2017 compared with 2016, Mexico’s output climbed by 11.2 percent in the same time frame.

Mexico’s first-half 2017 finished steel output of 10 million metric tons represented an 11 percent increase compared with the 900,000 metric tons produced in the first six months of 2016.

According to an analysis posted on the Hellenic Shipping News website, www.hellenicshippingnews.com, steel output growth in Mexico (which was mirrored in Brazil and some other South American nations) occurred despite Latin America importing 13 percent more Chinese steel by volume in the first half of 2017 when compared with the first six months of 2016.

Mexico’s boosted output is evident in scrap export figures for the first four months of 2017, when the U.S. sent 567,000 metric tons of ferrous scrap south of the border. That is an 81.7 percent increase compared to the 312,000 metric tons shipped in the first four months of 2016.

Supply side economics

When demand for scrap boosts pricing, scrap dealers raise their scale prices and the supply into yards begins to flow in at a faster pace. This is how recycled metals markets generally work.

A scrap dealer in the Great Lakes region, reached in July 2017, characterized inbound scale traffic into his facility in the early summer as “a nice steady flow, and everyone is busy.” A recycler in the Midwest, contacted in August 2017, said as scale prices rose during the summer, “Material seems to be coming out of the woodwork, as usual.”

A source of concern on the supply side for those who would rather see scrap iron prices remain buoyant—including demo contractors—involves the rapidly changing and often opaque Chinese economy.

The notion that China, which for many years has been an importer of ferrous scrap, might soon instead be a global exporter was a topic of discussion at more than one session at the ISRI2017 convention in New Orleans in April. (ISRI stands for Institute of Scrap Recycling Industries.)

At the event, retired Midrex Technologies executive Robert Hunter said he was not convinced that a “hyper-tsunami” of ferrous scrap leaving China for the U.S. and other parts of the world was imminent. He said, though, that as China’s ferrous scrap collection rises, the global market could “be in pretty deep water for a long time.”

Hunter said much of the steel made in China the past 15 years has either left the country in exported products or is embedded in infrastructure projects that will be in place for a long time. He noted, however, that China’s generation of scrapped automobiles and trucks is poised to rise significantly.

John Harris of Canada-based Aaristic Services Inc. also spoke of the potential “scrap tsunami,” at ISRI2017, and he continues to say it will soon have a major impact on the market.

When reached in early August, Harris said, “I have been stating for the last several years that China is definitely a scrap exporter to be reckoned with going forward.”

He continues, “My rough calculations (show) more than 100 million metric tons of scrap available for export, even before the closing of induction furnaces.” (China’s government has moved to close scrap-fed induction furnace steelmakers throughout 2017.)

Pittsburgh-based steel industry consultant Becky Hites of Steel Insights LLC is not as convinced regarding the size of the scrap wave.

“Scrap usage in China increased 8 percent in 2016, topping the 90 million metric tons level,” she comments.

“The country’s steelmakers seem well able to consume all of the scrap generated inside the country and are still supplementing their supply with purchases from the world market,” she adds, and notes that China imported 2.2 million metric tons of ferrous scrap in 2017.

She says, “Despite the many industry experts who expect China to become a net exporter of scrap, I disagree and believe the government will take actions to keep its scrap in the country, much as the Russians did a few years ago.”

Scrap trader Nathan K. Fruchter of Idoru Recycling Corp., located in Lawrence, New York, when asked if China would become a major scrap exporter in 2018, replies, “Absolutely not, but I think maybe in about eight to 10 years they may be, (and) even then, there will be issues.”

Fruchter says exported ferrous scrap from China to Taiwan and South Korea in May and June 2017 “was just a one-off event, because the government forced the closure of many (small steel mills). All these facilities had stockpiles, so exporting it was the next best thing.” He also says quality considerations will come into play.

“We’re looking at a first generation of scrap exports from China, which produces for BOFs (basic oxygen furnaces), so the quality of scrap you are getting is not equal to that produced for EAFs (electric arc furnaces),” he states.

In what has been a stable and relatively enjoyable market for scrap dealers and demo contractors alike, the notion of massive steel scrap exports from China provides one reason to stave off that scourge of good business management—complacency.

The author is an editor with the Recycling Today Media Group and can be contacted at btaylor@gie.net.