Ferrous

For the most part, however, they experienced more of the same, as 2008 limped to the finish line. Some buyers, both domestic and overseas, came back into the market, but most did so knowing they could name a much lower price than they could just three months earlier.

A recycler in the Northeast characterizes such buying in November as either opportunistic or planning ahead, with overseas mills in particular engaging in some "once and done" purchases to take advantage of lower pricing.

"They still have unfinished steel inventory, from what I understand," the recycler says of overseas steel producers. He speculates that the November buying was done in all likelihood "to prepare for the winter" in terms of scrap needs.

Many domestic mill companies are also staying on the sidelines, with the recycler commenting that mills with several locations are moving scrap by rail from their idled mills to those that are still melting. The technique allows them to get rid of the last of their "high-priced" scrap and also helps cash flow by keeping them from spending on scrap for another month.

A scrap recycler in the Southeast has witnessed a similar scenario, with a few export buyers taking advantage of low prices and low bulk cargo rates and domestic mills "still enjoying great margins" melting their existing inventories.

The overall lack of buying was evident in November spot pricing. In early November, buyers paid roughly from $60 to $110 per ton less for scrap than they did in October, according to transaction pricing compiled by Management Science Associates Inc. for its Raw Material Data Aggregation Service (RMDAS).

Nationally, the average spot buyer of No. 2 shredded scrap paid $160 per ton, $5 per ton more than the $155 per ton paid by the average buyer of prompt ferrous scrap (consisting of No. 1 busheling, No. 1 bundles and No. 1 factory bundles).

In both the North Central/East and the South regions, mills paid more for shredded scrap on average than they did for prompt grades. Bucking the trend was the North Midwest market region (Illinois, northwestern Indiana, Wisconsin, Minnesota, Iowa, Missouri, Kansas, Nebraska and the Dakotas), where prompt grades fetched $164 per ton compared to just $146 per ton for No. 2 shredded scrap.

No. 1 heavy melting scrap (HMS) remained several dollars lower in value than the other grades and also continued to lose value in November.

In the November buying period measured by RMDAS, No. 1 HMS traded at $119 on average nationally, with buyers in the North Midwest paying just $113 per ton.

In the global scrap market, reduced demand from steelmakers throughout the world remained the key factor in the dramatic change in ferrous scrap pricing in the past 90 days.

The World Steel Association (formerly the IISI), Brussels, compiled figures that show China produced 3.5 million fewer metric tons of steel in October compared to September and 7.5 million metric tons less steel (17 percent less) compared to October of 2007.

China was not alone in slowing down its furnaces, as steel production also dropped in the United States, Russia, Germany, Brazil and Turkey in October compared to the month before.

The steelmaking group calculated that globally some 6.9 percent less steel was made in October compared to September and that 12.4 percent less steel was produced in October 2008 compared to October 2007.

Ferrous scrap recyclers in the United States, having recovered from the initial shock of the sudden drop, have a different set of problems. Their financial conditions vary depending on the level of inventory they held around Labor Day and the extent to which they shipped loads at zero-percent down payment terms to overseas destinations around that same time.

"We’re basically done selling for the year," the Northeast recycler remarks, adding that he is glad his company sold large volumes of scrap in July and August.

Once the market spiral hit, "We kept lowering our buying prices; we didn’t want to buy at a loss, so we started paying just $50 or $60 per ton for shredder feedstock," he comments. "The traffic stopped—it dropped like a rock and went from dozens of trucks per day to five or 10."

The recycler in the Southeast reports similar conditions. "I’d estimate that our buy for November will be about 20 percent [by volume] of what it was for July," he comments.

There is a hint of optimism that the market could bounce back a little within the next 60 days. The scrap processor in the Southeast reports receiving initial inquiries about his company’s ability to ship in January. "We’ve had several inquiries as to how much scrap we have available," he notes.

"We’re going to raise our prices a little bit and buy," the Northeastern recycler says, "so when the steel mills come back—whether it’s in December, January or February—our inventory will be priced accordingly and we’ll also have some scrap to sell."