Another change in direction

Metals recyclers gathered in two of the commodities sector’s most important cities early this autumn, providing a chance to review where the ferrous scrap market has been in 2018 and to look at where it might be heading next.

Traders and processors met in Chicago in early September for the Institute of Scrap Recycling Industries (ISRI) Commodities Roundtable Forum and one month later in London for the Bureau of International Recycling (BIR) World Recycling Convention (Round-Table Sessions), and the market moved in two different directions during that 30-day span.

After prices fell by about $20 per ton in September as measured by Fastmarkets AMM Midwest Index pricing, they rebounded by about $10 to $20 per ton (depending on the grade) in the October buying period.

At the BIR event in early October, the effect of U.S. tariff policies drew attention from guest speaker Lee Allen of Fastmarkets Metal Bulletin, who said steel prices were rising even before the Trump administration enacted its Section 232 tariffs.

“To avoid production restrictions, most BOF mills [in China] have actively increased their scrap input.” – Rolf Willeke, BIR

Allen also said that while rebar shipments into the U.S. dropped in response to the tariffs, HRC (hot-rolled coil) shipments actually increased.

Iron metallics prices from January 2017 through September 2018 increased 20.3 percent, he said, while ferrous scrap pricing increased by 24.4 percent in the same period. Additionally, U.S. blast furnace output grew at a faster rate than electric arc furnace (EAF) output through August.

History shows that U.S. scrap market prices largely depend on actions out of Turkey. According to Allen’s presentation, a 91.6 percent correlation exists between Pittsburgh heavy melting steel (HMS) 1 and U.S.-origin HMS 1 and 2 in Turkey from January 2016 through September 2018.

Allen said the tariffs may help steel output outpace industrial production in the U.S. and the European Union, with scrap prices likely increasing as 2019 begins. The long-term outlook, he said, depends on the political will to keep up the tariffs. “As long as they remain in place, steel prices should remain high,” Allen added.

BIR Ferrous Division officers and board members provided updates from different parts of the world. The division’s interim President William Thomas Bird of Chiho Environmental Group, Hong Kong, said that when the division last met in Barcelona in May, those in attendance were optimistic the trade war between the U.S. and China would not escalate further. However, Bird said, that optimism was short-lived.

In his commentary in the “BIR World Mirror: Ferrous Metals” dated September 2018, Bird writes that trade tensions have “led to huge uncertainty and tremendous pressure on currencies.” He adds, “The Turkish lira has been under particular pressure, creating significant risks for the country’s mills.”

George Adams of Orange, California-based SA Recycling said the ferrous scrap industry in the U.S. has been on a “wild ride.” He added, “No one expected a 50 percent tariff on Turkey.”

In the “World Mirror,” Adams writes that the tariff “put a quick stop to U.S. imports of such steel and a drop in scrap prices to Turkey,” with pricing for No. 1 HMS falling to $300 per metric ton. The price rebounded fairly quickly, however, he adds.

Adams writes that a relatively quick resumption in buying by the Turkish mills didn’t stop downward pressure on the U.S. scrap markets in September, adding that ferrous scrap prices declined by $20 per metric ton in August and September for most grades in most regions. Most of that loss in value was subsequently regained in October.

Despite the uncertainty, Bird said pricing and markets for ferrous scrap had improved, and figures presented by Rolf Willeke, statistics advisor to the BIR Ferrous Division, help to illustrate that point.

Global crude steel production for the first six months of the year increased by roughly 4.6 percent compared with the same period in 2017, reaching 881.5 million metric tons, or 971.7 million short tons, Willeke writes in the “World Mirror.” The figures are from the World Steel Association (Worldsteel), which, like the BIR, is based in Brussels.

China accounted for roughly 451 million metric (497 million short) tons of that production, he told BIR Ferrous Division meeting attendees, which is more than 50 percent of global production.

Ferrous scrap consumption increased by 41 percent in China in the first half of 2018, Willeke said, making China the world’s largest ferrous scrap user.

In the “World Mirror,” Willeke writes that China’s increased use of ferrous scrap is because of the stricter environmental quality and air emissions standards the government has imposed on the steel industry.

“To meet these new thresholds and in order to avoid production restrictions, most BOF (basic oxygen furnace) mills have actively increased their scrap input, with their steel scrap/crude steel ratio said to have been 20-25 percent,” Willeke writes.

He adds that new EAFs are being installed or are in the pipeline in China. “As a result, further investments in steel scrap processing [in China] are planned, especially in shredder capacity.”

Fastmarkets 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 Fastmarkets 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. Fastmarket 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.html. The grades are based on the Institute of Scrap Recycling Inc. (ISRI) specifications. *FOB New York, in metric tons; **FOB Los Angeles, in metric tons.