Ferrous

CLAIMS AND ADJUSTMENTS

Inventory adjustments may have had their desired effect in terms of steel and ferrous scrap pricing.

Summer months filled with slower steel production schedules and less over-the-scale scrap buying may have allowed links throughout the iron chain (from scrap processors to steel mills to service centers to consumers of steel) to clear out inventory and prepare for a new cycle of buying and selling.

Early August indications pointed to the willingness of mills to pay more for premiums grades of scrap, such as auctioned factory bundles. Published reports in American Metal Market indicated scrap grades purchased in August would average $60-per-ton more than they did in July.

While the higher prices are welcomed by the sellers, ferrous buyers are anxious to see whether the market is strong enough to offer higher scale prices or to yield increased scrap generation on the industrial buying side.

Obsolete scrap continued to flow into yards at a slower pace in July, just as it had in June, in response to lower scale prices, according to one Midwest scrap buyer.

Even if flow returns, scrap supplies for domestic mills could remain tight. Recyclers on inland waterways have been shipping barges down to New Orleans and Mobile (shallow waters permitting), where they are being transloaded onto vessels heading for Turkey and other overseas destinations.

If higher priced bids from consumers can help those scale prices rise, this might finally bring out the scrap that processors need simply to fill orders.

Judging by steel mill melting capacity numbers issued by the American Iron and Steel Institute, domestic demand will not be a driver in the near term. The first full week of August saw an 80.6 percent melting capacity usage rate, making for the second slowest week in all of 2005.

Demand support for the market may not be coming from Europe in the short-term either, as Mittal Steel, with significant European capacity, has reported declining profits and shipments in the second quarter of 2005. The company’s shipments were down nearly 1.8 million tons in the second quarter compared to figures for the first. Chairman and CEO Lakishmi Mittal has cited "inventory de-stocking in Europe and the U.S." as the reason behind the decline.

An Aug.10 pronouncement from the China Steel and Iron Association (CSIA) could cause speculation as to whether ferrous scrap demand from that nation is about to increase yet again. The association pointed to iron ore prices that have "jumped 71.5 percent" as causing a snag in Chinese steel production.

A report by the Chinese news agency Xinhua quotes CSIA Vice President Luo Bingsheng as saying, "As the production cost keeps rising, restructure and regroup have become major tasks faced by China’s steel and iron industry."

Such a statement could mean many things, but certainly one interpretation is that producers will look for alternative feedstock or even alternative melting technology. Either technique could lead to more scrap dependence.

Also in the long term, Indian steel demand could rise if calls for improved infrastructure are heard. Bloomberg News has reported that the Mumbai (Bombay) Chamber of Commerce is calling for government leaders to take infrastructure improvements more seriously in the wake of a rainstorm that caused business to come to a halt in the city because of flooding that damaged transportation and communication networks.

Even in the United States, a long-delayed federal transportation bill was finally signed into law by President Bush in early August, helping to ensure that makers of both rebar and structural steel used in bridges should see more activity on interstate highway projects.

(Additional news about ferrous scrap, including breaking news and consuming industry reports, is available online at www.RecyclingToday.com.)