Ferrous

KEEPING THE SPIGOT OPEN

Despite attractive scale pricing and firm demand from mills and brokers, ferrous dealers may not be able to stave off the start of a seasonal slowdown in their material flow.

A mid-November dose of winter weather that hit a few major cities in the Great Lakes region provided the first reminder of how snow-related hiccups begin affecting business in northern climates.

Beyond the anticipated snowstorms, factors including the onset of hunting season (in some states) and the Thanksgiving holiday as a signal for contractors to put away their outdoor equipment for the winter have begun affecting flows of scrap from that sector.

Similarly, the manufacturing sector is entering a period of overall seasonal decline, when some customers will shut down altogether for a week or more and others will be affected by workforce vacations that will cut into production.

If pricing remains high, some dealers are optimistic that scrap will continue to find its way into their yards in the winter months, although there are concerns that the high scale prices of the past three years have drawn down significant portions of the scrap reservoir.

Scrap availability is one of several factors that could keep ferrous pricing on its "roller coaster ride," as one dealer described the 2005 market. The year has witnessed months with $50 or greater price swings, creating a market where "$15 and $20 swings seem almost sideways," in the words of another dealer.

In the longer-term, dealers are nervous about portions of the North American manufacturing sector, such as more production cuts and shifts anticipated by General Motors and Ford Motor Co. and their suppliers.

But the gloom is not across the spectrum, as some dealers have been encouraged by the stability of the levels of industrial scrap that have flowed into their yards in 2005. The demolition and construction sectors have also been healthy sources of scrap throughout the year.

Scrap that is making it into the yard is able to flow in all of its traditional directions now, as many of the summer and early fall woes that affected the inland waterway system were cleared up before any winter freezing occurred.

The Port of New Orleans is active again, with scrap barges again able to navigate the Mississippi and its tributaries after turmoil caused by factors ranging from drought, hurricanes and then a shortage of vessels.

On the sell side, market watchers are carefully listening to news from China, where steel prices have fallen in November, causing speculation that the nation’s steelmaking sector is finally producing at a rate that is outpacing its economy’s ability to consume steel. Such a circumstance, when it occurs, is labeled by many as a factor that can cause the ferrous scrap market to head back down toward pricing levels that were more typical before the 2003-2005 market boom.

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