A little bit of bounce

The May ferrous scrap buying period for domestic steel mills saw prices for two of the three largest scrap grades rebound compared with April, creating an up-and-down pattern to the market in the first five months of 2017.

Two of the three Midwest Index grades calculated by American Metal Market (AMM) increased in May, with the prompt No. 1 busheling grade showing the biggest rebound with a gain of more than $5 per ton.

The obsolete scrap grades held steadier, judging by the Midwest indices, with No. 1 heavy melting scrap (HMS) rising by less than $1 and shredded scrap losing 6 cents on average in value.

A modest amount of upward price pressure is coming from the export markets, with both of those AMM indices rising modestly in May (about $2 per ton on the East Coast and $3 per ton on the West Coast).

Containerized ferrous scrap buyers have made bids throughout the first half of 2017, says one East Coast recycler. “Indians are active container buyers, and their pricing looks like it will be competitive in May, as it has been in April,” the processor says. “We are loading a cargo next week and will clear out pretty much everything at good prices,” he comments in late April.

“Indians are active container buyers, and their pricing looks like it will be competitive in May, as it has been in April.” – an East Coast recycler

Late April also saw recyclers gather for ISRI2017, the annual convention of the Washington-based Institute of Scrap Recycling Industries (ISRI). The direction of ferrous scrap markets was discussed at more than one ISRI session.

Panelists at the Ferrous Spotlight said the impacts of China’s massive steel sector—considered to be overbuilt by most industry analysts—continue to weigh heavily on ferrous scrap pricing.

Becky Hites, president of Atlanta-area-based consulting firm Steel Insights LLC, remarked that even during decades as the world’s largest economy, steel production in the United States did not exceed 140 million metric tons per year (in 1973), and in the 1960s the U.S. peaked at about 26 percent of global steel output market share.

“The U.S. has done a lot of house cleaning” since then, Hites said, adding that the U.S. steel industry experienced “about 50 million tons per year of closed capacity in the 1990s.”

From the 1990s to the present, China’s steel sector has risen to produce more than 800 million metric tons of steel each year, for 48 percent global market share. One of the results of China’s steel sector buildup has been that steel has been on the front lines of President Trump’s “tough on trade” approach.

Hites said China “is capitalist, except when it’s not,” citing the support it shows for state-owned steelmaking companies. She predicted that at some point China will attain World Trade Organization (WTO) market economy status, which could prove problematic in the steel sector.

She referred to Turkey as the “swing factor” in the ferrous scrap market but noted that China also affects Turkey’s demand for North American scrap by sometimes supplying low-cost billet for its rolling mills, bypassing its melt shops.

John Harris of Canada-based consulting firm Aaristic Services said China’s steel industry dominance—and its reliance on basic oxygen furnace (BOF) steelmaking instead of scrap-intensive electric arc furnace (EAF) steelmaking—has suppressed scrap prices and likely will continue to.

Harris said North America is at the far end of the EAF market-share spectrum, using 65.8 million tons per year of scrap to make 110 million tons of steel. In the past two decades, while EAF steelmaking in North America has stagnated, China has pumped out more steel via BOF mills.

In terms of what this means for the ferrous scrap market, Harris said, “Every 1 percent of [U.S.] capacity utilization rate equates to 54,875 tons weekly of scrap needed.” While not much Chinese steel is imported directly into the U.S., some 25 percent of the steel used in the U.S. is imported, causing a ripple effect that keeps the capacity utilization rate below 75 percent. (China’s massive steel sector also is operating at only about 70 percent capacity, according to Harris.)

The future of the EAF sector nationally and globally was the focus of another ISRI2017 session, where speakers indicated that in the U.S. and globally the EAF sector may not dig much deeper into the market share of the BOF sector.

Robert Hunter, a recently retired 40-year veteran executive with Charlotte, North Carolina-based direct reduced iron (DRI) maker Midrex Technologies, said the changes to BOF steelmaking in the U.S. in the past 150 years have been staggering.

From a peak of some 600 blast furnace operations in the Civil War era, the number of BOF plants operating in the U.S. fell to nine during 2009. He said 15 are operating in 2017, but “they tend to be the best, and the ones best located.”

Globally, a major factor in future BOF versus EAF market share will concern China, Hunter said, where half of the world’s steel is made. China makes just 6 percent of its steel via EAF mills, a number that could rise as that nation begins to generate more of its own scrap.

Additional RMDAS (Raw Material Data Aggregation Service) pricing from Pittsburgh-based Management Science Associates (MSA) is available on the Recycling Today website at www.RecyclingToday.com/RMDAS. 

The American Metal Market (AMM) Midwest Ferrous Scrap Index is calculated based on transaction data received that are then tonnage-weighted and normalized to produce a final index value. The AMM Scrap Index includes material that will be delivered within 30 days to the mill. Spot business included after the 10th of the month will not be included. The AMM Ferrous Scrap Export Indices are calculated based on transaction data received that are then tonnage-weighted and normalized to produce a final index value. The detailed methodology is available at www.amm.com/pricing/methodology. *FOB New York, in metric tons; **FOB Los Angeles, in metric tons.