Drifting In The Narrows

Ferrous has been the Charlie Brown of commodities so far in 2011—good old, boring Charlie Brown.

When it comes to recycling, boring can be good. Boring is predictable. Boring allows a recycling yard to bring material in over the scales at a known price, sell it to steady buyers and realize a profit. Speculators may hate boring, but commercial recyclers can appreciate its worth. Therefore, recyclers should have been in love with the ferrous markets recently, because they are as boring as Charlie Brown.

Ferrous scrap prices traded in a rather narrow range, hovering near $400 for most of the first quarter of 2011. No. 2 shred was priced at approximately $450 per ton, again, with little fluctuation through the quarter. Cut grades dropped by about $10 in some areas. On the whole, markets were stable.

If there is a concern currently, it would be the high scrap inventories at many domestic steel mills. Some mills have substantial stockpiles of scrap and a lot more of the material coming in, sources say. In Dallas, for example, a large purchaser’s scrap inventory had grown so much that the mill has stopped receiving scrap by truck; only rail shipments are accepted. This move caused local prices to soften a bit, according to sources.

Most of the country saw a fairly busy January in terms of ferrous scrap trade. The pace slowed a bit in February, however. In the South and Southwest, that slowdown can be attributed to the storms early in the month that all but stopped truck traffic. The situation was the same in the North and North Central regions, where heavy snowfalls brought movement to a halt and made March flat across the region. Still, the ferrous market perked along, popping in spring like daffodils.
 

GOING WITH THE FLOW
“Flow is really strong,” says Adam Weitsman, president of Upstate Shredding, Owego, N.Y. “We have no problem getting in material.”

In fact, things are so good that Upstate Shredding replaced its old, maxed-out, 6,000-horsepower shredder with a new 10,000-horsepower unit at the end of March. In addition, Upstate purchased Genesee Scrap in Rochester, N.Y. There, too, the company will upgrade the existing shredder with another new 10,000-horsepower unit.

“We’ve been really happy with the feedstock this year,” Weitsman adds.

In the South, weather normally is not as big of a factor in the flow of scrap and shred as it is in some other markets. “For us it’s more a wet season/dry season situation, with winter being the wet season,” explains Frank Goulding, vice president of Newell Recycling of Atlanta, East Point, Ga.

He says he anticipates more working days as the weather improves. “We should see a lot of the obsolete scrap move,” Goulding says.

Being next door to the largest steel-producing state in the country, Newell Recycling is protected from many of the traditional vagaries of the market. Demand from the mills tends to be steady in the face of changes in export demand or other market upsets, Goulding says.

“The mills are buying. There is a ready market for shred,” he says, adding that it is not just a matter of picking up the phone to make a sale. “It does take some work, but they are active,” he says.

In Los Angeles, Greg Tellier, a ferrous specialist with Alpert & Alpert Iron & Metal Inc., says he anticipates ferrous scrap prices to drift downward slightly—from $10 to $15—through April.

“It is not a matter of supply. And we are making the sales we need. Demand is decent,” he adds.

Alpert & Alpert is not doing direct export but stays on top of that market, Tellier says.

“Material is moving fairly well,” agrees Marc Olgin, CEO of Liberty Iron & Metal, Phoenix. He reports that the mills in his area are active. “We have no trouble selling material,” Olgin adds.

“We’ve been swamped,” says Ray Six, owner of Six Recycling, based in East Liverpool, Ohio.

Spring brings out the Average Joe, he says, and Average Joe has been busy with spring cleaning and rounding up material that has sat through the winter months.

The situation is similar north of the border. “We’re getting scrap, no problem,” says Steve Taylor, operations manager at Ben-Met, Guelph, Ontario. Ben-Met’s business will pick up as the weather warms, similar to recyclers in the North and Midwest U.S. Prices, however, are in a different range.

Ben-Met is paying CDN$230 per gross ton for No. 2 shred feedstock over the scale. “That’s a pretty good price,” Taylor says, noting that the price has stayed in that range—plus or minus $10—throughout the winter months.

Both in the United States and in Canada, the mills have been buying. Ben-Met is selling material in the range of CDN$340 to local mills.

Prices are different in the United States, but scrap is moving out the door just as freely. “We are not having any problem selling to the mills,” Six says. “They are here every month, bidding on material.”

Throughout the past several months, prices have not changed much, he says. “I expect it to stay the same for the next couple of months, plus or minus $20,” Six adds.

“Things are pretty subdued,” says Aaron Coulter, assistant manager at Skagit River Steel & Recycling, Burlington, Wash. “Things are kind of moderate, but we are hoping for more activity.”

Josh Cohen, founder and CEO of Falcon Metals L.P., with locations in Dallas and Terrell, Texas, says, “All things considered, we are in a good position. Prices are $100 a ton more than they were this time last year.” He continues, “Prices dropped a bit in March.”

However, Cohen says he expects exports to perk up as spring wears on, which should help to strengthen the domestic market as well.

Right now, Cohen says, manufacturers are squeezed. “On the manufacturing side, some say the only profit they are seeing is on their scrap,” he says.

Indeed, HMS (heavy melting scrap) was trading at less than $300 for a while this past fall, though it took a steady run-up to the $400 level in the second half of 2010 and into 2011.
 

HEATING UP INTO SUMMER
Much of the prevailing optimism in the market is based on a continued recovery from the recession. Manufacturing, the auto sector and even construction are showing signs of life.

“Relative to 2008, it’s not that great,” Goulding says. “Relative to 2009, we are very happy with the flow.”

Because Newell Recycling of Atlanta is in a heavy steel-producing region, Goulding says he keeps close watch on mill trends. “There is a prediction that prices will soften into summer,” Goulding says. “But right now the mills are enjoying a good buy-sell margin.”

Even if the price of shred should pull back somewhat, Goulding says he figures the mills will continue to run at 72 to 74 percent. “That means they will have to stay active in the market,” he says.

Others see a similar domestic picture. “I’m pretty confident about things improving as we come out of this long-term market slump,” Cohen says. “I’m already seeing an increase this year. I’m confident that the rest of the year will be good.”

Part of his optimism is based on the fact that there is not a lot of scrap around. “Down here (Texas), the recovery has not been that tremendous. Volumes have not gone back to pre-stock market crash levels,” Cohen says.

“People haven’t woken up from the doldrums,” Coulter adds.

Olgin says that supplies have been fine but he has no idea what the spring and summer will bring.

Many observers say they expect the market to continue to trade in its narrow price range. “I don’t see the market giving up $100,” Tellier says. “And I don’t see it jumping $100.” He adds, “Unless there is some sort of [major event], things will stay fairly calm.”

Six says he is concerned about retail sales and the run-up in gasoline prices. “If gas prices continue to rise, it could cause another downward spiral in the economy,” he says, adding that he fears a repeat of the 2008 economic downturn.

In Canada, Taylor says he has seen a small drift upward in price for some grades and he expects the local price to go up another $10 or so in May.

Demand is strong, he adds. Ben-Met sells mainly to local mills, and Taylor says, “We can ship (ferrous scrap) out as fast as we can get it in.”
 

EXPORT INFLUENCE
Weitsman’s Upstate Shredding does business in an export area. He says prices for export orders have been tapering back a bit. In addition, flow is increasing as the weather improves.

Of course, he says, the buyers at domestic mills are aware of what is happening. “The mills smell weakness in the export market,” Weitsman says. “That is going to put some downward pressure on prices, unless the export market does a turn-around,” he adds.

Much of the material Upstate Shredding is processing these days comes from relatively far away. “We have to go get it,” Weitsman says. The company maintains a good network of feeder yards and has no problem trucking loads in from some distance, he says.

Goulding enjoys a $25 variance in price in favor of the domestic market compared with the export market. “If we were in the Northeast or West Coast (where there is a stronger export market than in the South), we’d be competing against the export markets,” he notes. Still, he keeps a watchful eye on what is going on in exports.

The situation in Japan, with its post-tsunami hiatus in manufacturing, has taken a major consumer of steel and a major producer of steel scrap out of the world picture.

“I expect the export markets to normalize,” Goulding says. He adds that there may be push in exports in the future to cover the shortfall from Japan.

Perhaps more worrisome to scrap processors on the East Coast is the situation in the Mediterranean and along the African Coast. Societies are in turmoil. Dictators are either falling or digging in their heels.

It is not that nations like Libya or Cote d’Ivore are big steel scrap consumers. The big player in the region is Turkey, and while its own political situation is calm, its major markets are the Muslim nations across the Middle East and in North Africa. If Turkey cannot sell to its traditional trading partners, there will be market troubles for scrap suppliers whose materials go into that part of the globe.