Demand from All Sides

They inevitably looked inward toward the healthier North American mills and foundries, where they competed initially with other domestic scrap processors, and then eventually with scrap shipped in from overseas markets.

While lower scrap prices affected everyone, shippers were faced with a market that took an about face: ferrous scrap was now coming into the country at a faster pace than it was leaving. In 2000, shippers may see some healthy traffic in both directions.

ASIAN RENEWAL

raditionally, scrap processors in the U.S. and Canada have enjoyed their location in nations with scrap surpluses. Before the mini-mill boom, especially, far more industrial and obsolete scrap hit the market than could be consumed in North America alone. Thus, exporters could find ample supplies of scrap on the buy side and eager markets on the sell  side in nations such as South Korea, Taiwan and Turkey.

When those Asian destinations wound down their importing activity in 1998, processors at export yards were forced to change the way they did business and hope that the Asian slump would not last too long. Fortunately, it looks like the slump has indeed run its course, and scrap export figures to Asia have been rising.

The second half of 1999 saw export numbers to Asia climb noticeably. In August of 1999, Japan imported more than $3.1 million worth of ferrous scrap from the U.S., which matched the amount imported in the first seven months of the year combined. Taiwan imported more than $4 million worth of ferrous scrap in August after taking in an average of $3.3 million each of the first seven months, according to the U.S. Geological Survey (USGS), Reston, Va.

“If European economies and the Japanese economy picks up, they are scrap consumers, so scrap should begin flowing and they will be after our scrap as they have been for the past 25 years,” says Bill Heenan, president of the Steel Recycling Institute, Pittsburgh.

Figures compiled by the International Iron and Steel Institute (IISI), Brussels, indicate steel production numbers in Asia that are warming up, but can not be considered red hot. With eleven months of 1999 in the IISI’s books, Asia’s total crude steel production was up 2.8% over 1998 levels.

South Korea’s 2.7% increase was reflective of the Asian trend, while China ramped up with an additional 7.7% of production (eight million metric tons). Japan’s economy, unfortunately, seems to be lingering in its lugubrious state, with steel production there actually down 0.6% in the first 11 months of 1999.

Scrap traders who gathered for the Bureau of International Recycling (BIR) fall convention in October of 1999 heard some positive news from those reporting on the markets in Asia and Australia. It was reported there by Simsmetal Ltd.’s John Crabb that South Korea’s ferrous scrap imports had risen by 36.5% in the first seven months of 1999 compared to the year before, while India has also increased its presence as a scrap importer.

It was noted by BIR board member Sadao Taya, however, that Japan was a conspicuous exception to revival in the Far East. Taya reported that the economic situation in the land of the rising sun was very weak, and that “all the figures are in decline . . . except for scrap exports.”

 ACROSS THE BORDER

An export destination of increasing importance to processors in the southern U.S. lies across the Rio Grande in Mexico.

If August 1999 figures are any indication, Mexican steel mills are getting hungrier for North American scrap. According to USGS figures, Mexico imported 86,000 metric tons of scrap from the U.S. in August, after averaging 58,700 metric tons imported in each of the first seven months of the year.

Jack Vexler of Monterey Iron & Metal, San Antonio, Texas, is hopeful that the burgeoning Mexican market will lift demand in the still somewhat sluggish south Texas scrap market. “I’m half-way expecting a pleasant surprise from Mexico, but as we speak, it hasn’t occurred yet,” he says.

“The economy is going full tilt, and unemployment is low, so you would think that they will need scrap,” he says of the Mexican market.

IISI steel production figures indicate a healthy Mexican economy as well. Mexico churned out more than 1.25 million metric tons of crude steel in both October and November of 1999, and in October 1999 produced at a 20% greater clip than in October of 1998. In the first 11 months of 1999, Mexico increased its steel production by 6.8% over the same span the year before.

In 1998, Mexico was the third largest export destination for U.S. ferrous scrap (based on tonnage), accepting more than 960,000 metric tons. Only Canada and South Korea surpassed that figure. Mexico appears destined to finish third again this year, although South Korea may surpass Canada as the leading destination.

 POST-RED MENACE

The end of the Cold War brought with it freedom for many, opportunities for some and—perhaps less well known to the general population—one of the greatest surges of obsolete scrap in history.

As the military-industrial complex of the former Soviet Union lost much of its purpose and funding, a certain amount of economic chaos descended upon the economies of Eastern Europe. Companies, individuals and government agencies in Russia, the Ukraine and neighboring republics sought out sources of hard currency, and often turned to a bountiful commodity: scrap metal.

In the late 1990s, weapons, munitions plants and government complexes of all types were dismantled and demolished and sold onto the global scrap markets. Ferrous scrap was at the head of the parade, and Russians seeking currency kept selling into the market even after the Asian crisis hit and the prices they were receiving were far less attractive.

Russia’s experience with ferrous scrap’s austenitic cousin, stainless steel, is indicative of the tidal wave of scrap created by the “great dismantling.” According to Dr. E.J. “Jim” Hayes of Abacus Consultancy, Chelmsford, U.K., in 1990 Russia put just 2,000 tons of nickel-bearing scrap on the market. That number rose throughout the 1990s until peaking at 346,000 tons in 1997. It was down slightly in 1998, but still weighed in at over 300,000 tons.

Hayes, who gave a presentation at the Institute of Scrap Recycling Industries Inc. (ISRI) 1999 Nickel/Stainless/Specialty Metals Roundtable, noted that the overwhelming flow of scrap being put onto the market was stemmed only after most of the dismantling was complete.

European and American governments ultimately sought and obtained export limits from Russia on the amount of steel and scrap that nation could ship into their ports. Those limits, coupled with scrap licensing measures introduced in Russia to clamp down on nonferrous scrap theft, have greatly reduced the amount of scrap leaving Russia.

Ironically, the rest of the world may soon be ready to welcome some shipments of Russian scrap if global steel production ramps up in east Asia and new capacity comes online at full strength in North America.

 NEU WORLD ORDER

Will outbound shipments of ferrous scrap from the U.S. eventually decline not because of slack overseas markets, but because North American steel mills will be gobbling up every pound of ferrous scrap that they can acquire?

That scenario has been proposed by steel industry analyst Peter Marcus for some time, and has also gained favor with scrap processing executive John L. Neu of Hugo Neu Corp., New York.

In remarks made to the BIR 1999 Fall Convention in Prague, Neu noted that mill capacity increases have recently come online at several mills, including Trico Steel in Alabama; Birmingham Steel’s Cartersville, Ga., mill; SMI-Cayce, S.C.; Nucor’s Berkeley, S.C., mill; Chaparral Steel in Petersburg, Va.; North Star’s Youngstown, Ohio facility; Newport Steel in Kentucky; Beta Steel in Utica, Mich.; and CSC Steel in Warren, Ohio. Additionally, Nucor’s new one million tons-per-year plate mill in Hertford, N.C. will begin melting in early 2000.

“Each of these [mills] utilizes EAF furnaces, and with others has created an increased new capacity of about 15 million tons over the last ten years in the United States,” Neu remarked.

That added capacity is helping move the EAF sector up to and beyond its current level of 46% of the overall steel industry in the U.S. The growth of the scrap-melting EAF sector has already changed the flow of scrap from the U.S. to the rest of the world.

“U.S. East Coast exporters, once the foundation of the export flow from the United States, have in recent years been diverting a larger percentage of their scrap to U.S. consumers,” noted Neu. “One only needs to see the projection of scrap exports from the U.S., which is now estimated to be 5.2 million tons for 1999, to understand that a larger and larger percentage of scrap produced on the coasts is being shipped domestically.”

At the same time, ferrous scrap shipments into the U.S. are up, in part, perhaps, because of the recent sluggish state of overseas economies. Another reason, though, could be that the U.S. is no longer the overwhelming scrap surplus nation that it used to be.

“It is clearly possible that within 12 to 18 months, the U.S. could be a net scrap importer,” Neu said in October of 1999. “Scrap processors are now shipping via rail car and barge from the Northeast to the Southeast and Midwest. West Coast processors are shipping to consumers as far east as the Mississippi River and even into Alabama.”

If Asian and European mills increase their melting activity in the near future, an already tightening scrap supply could cause mills in most countries to gobble up scrap generated in their own countries before it ever has the chance to hit the export market. The established global nature of scrap trade and affordable shipping rates, however, could still keep shippers in business.

A scenario involving a shortage of scrap has been predicted for some time by steel industry analyst Peter Marcus of World Steel Dynamics, Englewood Cliffs, N.J. Marcus sees a shortage as inevitable considering the growth of EAF steelmaking worldwide.

 At his presentation to ISRI members at the Mega-Roundtables in the fall of 1999, Marcus predicted a 3% to 4% rise in steel demand in 2000, reflecting healthier Asian economies. Adding that ferrous scrap prices in the new decade should average $10 to $15 per ton higher, Marcus gave several reasons for believing that scrap would be in short supply as the decade progresses:

• Steelmaking should increase at an average 2.1% rate annually, thus increasing scrap demand

• Supplies of prompt industrial scrap are not likely to increase greatly, since the ultra-competitive global economy discourages the production of scrap by manufacturers

• According to Marcus’ own calculations of the available “reservoir” of obsolete scrap, the growth of that reservoir is not nearly fast enough to match the booming growth of EAF steelmaking production.

Will this scrap shortage hamper importing and exporting activities?

Although Marcus notes that freight rates help scrap keep moving internationally, he also points out that “steel scrap prices no longer are lower in the United States than in Europe and Japan.” He adds that, “when steel scrap prices are relatively high in the United States, U.S. scrap exporters cannot garner as high a price when exporting, because they compete with foreign sources on the basis of the price delivered to the port of the steel scrap user.”

If the steel industry is as healthy worldwide in the next few years as analysts predict, exporters and importers alike may find it more difficult to put together scrap shipments, since hungry mills closer to the source may consume it before a bill of lading can be filled out.   

The author is editor of Recycling Today.